equity & exitsBlog · Selling a Business
Your $3.4 Million Sale Price Isn't Your Check: A Closing Statement, Line by Line
You agree to sell your business for $3.4 million. You sign the letter of intent. And, let's be honest, you start picturing what that number looks like in your bank account.
Then closing day gets closer and that $3.4 million starts shrinking. There's a working capital adjustment, a debt payoff, an inventory shortfall, and transaction expenses. The number on the closing statement isn't the number you planned around.
So let's follow one example transaction all the way down to the seller's estimated walk-away check, step by step and line by line. The sale price gets all the attention, but the walk-away check is what actually changes your life.
Start here: the deal as signed
In this example, the purchase price is $3,400,000. It's agreed, signed, and official. That's the number on the LOI, the one you started planning around. Now let's follow the money from that number to the actual check.
Step 1: The working capital target (a $90,000 shortfall)
A buyer isn't just buying your historical earnings. They're buying an operating business that has to function the morning after closing. Employees need to be paid, vendors need to be paid, and inventory needs to be ordered.
That's why most deals include a working capital target: a minimum level of operating capital that has to stay in the business at closing.
That target can't be a number either side picks because it sounds fair. It has to reflect what the business actually needs to keep running:
- Is the business seasonal?
- Does it carry more inventory before its busy season?
- Do customers usually pay in 30 days or in 90?
Get the target wrong and the adjustment at closing comes out wrong right along with it.
In this example, buyer and seller agree the business normally runs on $480,000 of working capital, so that becomes the target. At closing, actual qualifying working capital is $390,000. That's a $90,000 shortfall, and depending on the purchase agreement, it comes out of the seller's proceeds.
Running total: $3,400,000 − $90,000 = $3,310,000
Step 2: Paying off the debt (−$340,000)
The business carries $340,000 of outstanding debt that has to be paid off as part of the sale.
Running total: $3,310,000 − $340,000 = $2,970,000
That's already a $430,000 gap between the purchase price and what's left, and we haven't even gotten to taxes. The price didn't move. The money did.
The receivables trap: counting the same dollar twice
This is the part almost every seller gets wrong in their own head.
Say customers owe the business $410,000 at closing. A lot of sellers see that number and start counting it as money coming to them on top of the purchase price. Whether it is depends entirely on the agreement. Does that receivable stay with the business? Does it transfer to the buyer? Is it already baked into the working capital number from Step 1? In most structures, it's already in there.
Now flip it. Say the business owes vendors $190,000. Some sellers look at their cash and think of it as fully theirs, forgetting the bill sitting right behind it.
That's how sellers end up counting the same dollar twice: once as an asset they're keeping, and again as if the offsetting liability doesn't exist. Receivables and payables aren't separate bonus items. In most deals they already live inside the working capital target.
Add extra money for the receivables without netting out the payables, and your mental math can be off by hundreds of thousands of dollars before you even reach the real adjustments. Look at the balance sheet as one connected system, not a handful of numbers you get to pick from.
Step 3: The inventory count (−$34,000)
The deal assumed the business would deliver $255,000 of usable inventory. The final count came in at $221,000. Some of it was obsolete, and some hadn't moved in years. That's a $34,000 adjustment.
Running total: $2,970,000 − $34,000 = $2,936,000
Step 4: Transaction expenses (−$125,000)
Legal, accounting, advisory, and closing costs add up to $125,000 in this example.
Estimated proceeds before taxes: $2,936,000 − $125,000 = $2,811,000
The full closing map
| Line item | Amount | Running total |
|---|---|---|
| Purchase price (LOI) | $3,400,000 | $3,400,000 |
| Working capital shortfall ($480K target vs. $390K actual) | −$90,000 | $3,310,000 |
| Debt payoff | −$340,000 | $2,970,000 |
| Inventory adjustment ($255K expected vs. $221K counted) | −$34,000 | $2,936,000 |
| Transaction expenses | −$125,000 | $2,811,000 |
| Gap from LOI price | −$589,000 |
That's $589,000 below the number on the letter of intent. The deal didn't go wrong, and the buyer didn't renegotiate. It happened because the closing math was never modeled before the offer was accepted. And this is still a pre-tax number.
How this usually happens
A seller spends months negotiating the purchase price. They fight over $50,000, then another $50,000, and they finally get the number they wanted. But they never model the rest of the closing statement.
Then they discover the working capital shortfall, the debt payoff, the inventory adjustment, and the receivable they thought was extra but never was. That's when they realize they were negotiating one line instead of the whole transaction.
That mistake costs business owners hundreds of thousands of dollars. They weren't bad negotiators. They were optimizing the wrong number.
Frequently asked questions
What is a working capital target when selling a business? It's the amount of operating capital (roughly current assets minus current liabilities, as defined in your agreement) that has to stay in the business at closing. If actual working capital comes in below the target, the shortfall usually reduces the seller's proceeds. If it comes in above, the seller may get the excess back.
Do I keep my accounts receivable when I sell my business? It depends on the purchase agreement. In many deals, receivables are already counted inside the working capital target, so they aren't extra money on top of the price. Model them together with your payables.
What are typical transaction expenses in a business sale? Legal, accounting, advisory or broker fees, and closing costs. In this example they total $125,000. Yours will depend on deal size and complexity.
Is the closing statement number before or after taxes? Before. Taxes on the sale come after, and they depend on how the deal is structured, so bring your CPA in early.
Know your walk-away number before you get an offer
I use my Forensic Exit Audit Scorecard to build your estimated closing statement (working capital, debt, receivables, payables, inventory, and expenses) before you ever receive an offer, so nothing on the real statement surprises you. Request your free Forensic Exit Audit.
All figures are from an illustrative example, not a specific client transaction. Purchase agreement terms, working capital definitions, and tax treatment vary by deal. This article is for education only and isn't legal, tax, or financial advice. Talk with your CPA and attorney before making decisions.
Sumathi Sivakumar | Equity & Exits | DRE #02159366