Beware the Working Capital Adjustment

As a founder, regardless of your industry—from manufacturing to tech startups—you've dedicated yourself to building something remarkable. But when it's time to sell, watch out for potential hurdles like the Working Capital Adjustment (WCA) that could impact your sale.

Understanding the Working Capital Adjustment (WCA)

The WCA is a crucial accounting term that can significantly affect your business sale. It adjusts the purchase price based on changes in your company's working capital between signing the agreement and closing the deal.

Impact on Sale Price

Imagine agreeing to sell your business for $10 million with a target working capital of $2 million. If the actual working capital at closing differs, the purchase price adjusts accordingly—up or down—potentially costing or earning you millions.

Attention to Detail

Don't underestimate the importance of addressing the WCA in your Letter of Intent (LOI) and Purchase Agreement. Clear definitions, detailed calculations, and attachments are vital to avoid confusion and disputes that could derail your deal.

The Fate of the Deal Hangs in the Balance

Neglecting the WCA can lead to prolonged negotiations, disputes, or even the collapse of the deal. Protect your interests and deal smoothly by ensuring the WCA is properly defined and accounted for.

Remember, staying vigilant about the Working Capital Adjustment is essential for any founder selling a business. By grasping its implications and taking proactive measures to handle it, you can safeguard your interests and ensure a seamless transaction.

Still have questions? Reach out: Talk to Kirk