The transaction closed two months ago, and now the buyer is claiming a post-closing working capital deficit and demanding we refund them from our escrow. How do we challenge their post-close adjustment calculations to protect our proceeds?

Question

Tyler Smith · Accepted Answer

The post-closing working capital true-up is a favorite tool of aggressive buyers looking to claw back a portion of the purchase price. Typically, the purchase agreement gives the buyer ninety days after closing to prepare a closing balance sheet and propose a final adjustment against the net working capital peg. If they claim a deficit, you must challenge their calculations immediately. First, review the purchase agreement to ensure they are using the exact same accounting methodologies, policies, and definitions that were used to calculate the historical target peg. Buyers often try to sneak in changes, like writing down older accounts receivable or increasing inventory reserves, which violates the requirement for consistency. Gather your finance team and use your IDS® process to analyze every disputed item. Next, formally object in writing within the contractually specified window, usually thirty days, detailing every variance where the buyer deviated from historical practices. If the parties cannot agree, the dispute should be referred to a pre-determined, independent accounting firm to act as an arbitrator. By maintaining a rigorous, documented defense of your closing balance sheet, you prevent the buyer from using accounting tricks to erode your hard-earned deal proceeds.