Closing adjustments finalize the purchase price at completion based on the actual financial position delivered; post-closing adjustments settle any remaining differences after closing once final figures are confirmed.

The purchase price agreed in a letter of intent is almost never the exact amount paid at closing. Two adjustments are standard. First, the working capital adjustment compares the working capital actually delivered at closing to the agreed target. If the business delivered more working capital than targeted, the buyer pays more; if less, the seller receives less. Second, certain items, tax liabilities, undisclosed claims, and warranty breaches, may produce post-closing adjustments that are settled through an escrow holdback or direct payment after closing.

The mechanism for calculating and resolving these adjustments needs to be precisely defined in the purchase and sale agreement before closing, not negotiated after. Disputes over closing adjustments are among the most common sources of post-closing conflict in private transactions, almost always because the adjustment mechanism was ambiguous, the accounting policies were undefined, or the parties had different assumptions about what would be delivered.

Closing adjustments that are not precisely defined before signing are disputes waiting to happen. See how Wefinx approaches exit planning.

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