So, you thought you negotiated the price for your company - but think again. The contract determines how the balance sheet will be treated and that treatment will result in a price adjustment.
There’s lots of value in your balance sheet, and the way that it is divided up will impact the amount of money you put in your pocket or leave for the buyer. The two popular methods for dividing up a balance sheet are called “locked box” and “completion” accounts. The locked box method is more popular outside the US and calculates price based on a recent historical balance sheet. Completion accounts are adjusted at closing and are generally seen as more buyer-friendly than a locked box. Neither method is intended to alter the amount saved for the business, but in practice it can. Here are a couple of common pitfalls to watch for:
There are some additional pitfalls, too, so watch carefully. True cash-and-carry deals are seldom seen.