Last updated: 2026-04-13
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What is a Working Capital Adjustment in M&A?
A working capital adjustment is a cash payment made after closing to correct the difference between the target company’s expected and actual working capital at sale. If a plumbing contractor closes with $150,000 in accounts receivable but the purchase agreement specified $100,000, the seller typically refunds the buyer $50,000. These adjustments directly impact seller proceeds and can range from 2-8% of deal value in home services transactions. For a deeper look, see our guide on sell your business with working capital adjustment example. For a deeper look, see our guide on streamline your business sale with our working capital adjustment tool.
How Working Capital Adjustments Work
Working capital consists of current assets (accounts receivable, inventory, prepaid expenses) minus current liabilities (accounts payable, accrued expenses). During deal negotiations, buyer and seller agree on a “target working capital” amount—essentially a baseline for how much cash the business needs to operate normally. For a deeper look, see our guide on working capital adjustment acquisition.
At closing, an accountant measures actual working capital. If it exceeds the target, the seller receives additional payment. If it falls short, the seller reimburses the buyer. This is a dollar-for-dollar true-up.
Real Home Services Examples
- HVAC service company: Target set at $80,000 (30 days of receivables). At closing, receivables total $120,000 because seasonal demand peaked. Seller owes buyer $40,000.
- Plumbing contractor: Target was $50,000, but owner collected aggressively pre-sale, leaving only $30,000 in receivables. Buyer pays seller an additional $20,000.
- Landscaping firm: Vendor invoices outstanding (payables) were underestimated by $25,000. Buyer deducts this from the final payment.
Why Buyers Care
Buyers purchase working capital along with the business. If you overpay for cash that wasn’t actually there, you’ve overpaid for the company. A buyer acquiring a HVAC company needs operating cash to pay technicians, buy inventory, and cover vendor terms. Without the expected amount, the buyer’s cash flow suffers immediately post-close.
Why Sellers Should Understand This
Working capital adjustments directly reduce your final check. A $5 million home services acquisition with a $200,000 working capital shortfall means you receive $200,000 less. Many sellers don’t anticipate this; they think the agreed price is final. It’s not.
Sellers often try to minimize working capital targets during negotiation because higher targets mean larger potential refunds. However, unrealistic low targets can trigger post-closing disputes if actual working capital falls short.
What This Means For You
If you’re selling your home services business, understand that working capital adjustments are standard and material. They’re calculated within 60-90 days after closing and can reduce your proceeds significantly. Request a detailed working capital statement before signing, and consider having your accountant review the buyer’s calculation. Firms like CT Acquisitions help sellers understand these mechanics upfront so there are no surprises at the finish line.
FAQ
Can working capital adjustments be disputed?
Yes. If buyer and seller disagree on the calculation, most agreements include an independent accounting firm to arbitrate. This can cost $15,000-$40,000 in fees, split between parties. Most disputes involve accounts receivable collectability or timing of payables. Detailed documentation during the final 30 days before closing prevents most conflicts.
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