Working Capital Adjustment
The post-close true-up that adjusts purchase price based on the target's working capital at closing.
- Target working capital methodology
- Definition of working capital components
- Settlement timeline and dispute mechanism
- Material adverse change interplay
If this clause already feels aggressive in isolation, upload the full contract and see how it combines with payment terms, liabilities, and exit rights.
Analyze My ContractWhat this clause actually does
A working capital adjustment compares the target's actual working capital at close to a pre-agreed target amount. If actual is below target, the seller refunds the difference. If actual is above target, the buyer pays additional purchase price. Most SMB deals settle within 60 to 90 days post-close.
Why people get burned by this clause
On a $3M SMB deal, a $200K working capital miss can erase your equity contribution. Sellers often run AR collection hard and let AP grow in the months before close to game this number.
What should make you slow down
- Target working capital set without trailing 12-month average analysis
- Definition of working capital excludes deferred revenue or accrued expenses
- Settlement period over 90 days
- Dispute resolution requires arbitration in seller's home jurisdiction
- No floor on adjustment magnitude (allows large surprise true-ups)
Where you usually see it
- Asset purchase agreements
- Stock purchase agreements
What the platform checks in the live contract
- Target working capital methodology
- Definition of working capital components
- Settlement timeline and dispute mechanism
- Material adverse change interplay
- Comparison to trailing 12-month average
What stronger language usually looks like
- Target based on trailing 12-month average (normalized for seasonality)
- Comprehensive working capital definition matching GAAP
- 60-day settlement window
- Independent accountant resolves disputes
Definitions worth opening next
Articles that go deeper
Set the target with a CPA who has reviewed the trailing 12 months. The methodology, not the number, is where deals get won or lost in the working capital adjustment.
See how this clause behaves in the real contract.
The clause library gives you judgment. The full review shows how this clause combines with the rest of the agreement, then quotes the exact language, scores the risk, and explains what to push on next.