Meaning
A disagreement between a buyer and a seller over the value of the short-term assets and liabilities at the time of a company’s sale represents a common post-closing conflict. A working capital dispute arises when the actual cash and inventory on the closing date differ from the estimates used to set the price. It governs the final adjustment of the purchase price.
A founder may find that a buyer tries to claw back funds by claiming the inventory was worth less than stated. This mechanism ensures that the buyer pays for exactly what they receive.
Closing Audit
The process of resolving this conflict involves a detailed audit of the books as they stood on the day of the deal. Both sides hire accountants to review the numbers and look for errors. This can take months to resolve and often requires a third-party expert.
The record of the company’s financial state is the only evidence that matters.
Negotiation Strategy
Setting a clear target for these figures in the original contract is the best way to avoid a fight. If the definition of what counts as an asset is too vague, it leaves room for the buyer to complain about the quality of the books. Founders often push for a narrow definition to protect their exit proceeds and ensure that the final payment matches their expectations.
This creates a tension that must be resolved before the deal is signed.
Outcome Resolution
Most of these cases end in a compromise where the price is adjusted slightly. If the parties cannot agree, the cost of the dispute can eat into the gains from the sale. A well-managed closing process reduces this risk by providing clear and accurate data from the start.
