Glossary
Completion accounts
A set of accounts prepared after completion to establish the actual cash, debt and working capital of the business on the completion date, so that the price can be adjusted to reflect them.
In plain English
When a price is agreed, it is usually based on an enterprise value with assumptions about how much cash, debt and working capital the business will have on the day it changes hands. With completion accounts, those assumptions are checked after the event. Accounts are drawn up as at the completion date, and if the actual figures differ from the assumed ones, the price goes up or down.
The alternative is a locked box, which fixes the price by reference to an earlier balance sheet and avoids the after completion adjustment.
Why it matters
Completion accounts are precise but uncertain. The seller does not know the final price on the day of completion, and the process of agreeing the accounts can take months and become contentious. Buyers often favour them because they pay for exactly what they receive. Sellers often prefer the certainty of a locked box.
What to watch for
- The accounting policies and definitions used to prepare the accounts are negotiated in the sale agreement, and they determine the outcome. Definitions of cash, debt and working capital deserve particular attention.
- A target working capital figure is agreed in advance. The adjustment measures the actual figure against it.
- Dispute mechanisms, usually referral to an independent accountant, are built in.
Transaction language and legal treatment depend on the agreement and the jurisdiction. Written by Motion Advisory Partners as general guidance, not legal advice.