Completion accounts and price adjustments

Completion accounts can adjust the price by reference to financial balances at completion. The agreement should define the relevant items and accounting policies before the transaction closes. Cash, debt and working capital can mean different things in different deals, so ordinary labels are not enough.

Agree who prepares the accounts, the information available, the review period and the dispute route. Test unusual balances, customer deposits, tax liabilities and transaction costs. Avoid leaving the parties to argue after completion about which accounting policy was intended to control the calculation.

Define the price mechanism before preparing numbers

Identify which balances adjust the price and the reference point for comparison. Cash, debt and working capital need contractual definitions tailored to the business. A bank balance may include restricted funds, and a customer deposit may create an obligation to supply work after completion. Do not assume accounting presentation alone determines whether an item belongs in the agreed price calculation.

Prepare a worked example using the latest reliable balance sheet. Show the starting price, each adjustment and the resulting amount payable. Test a positive and negative movement so both parties understand the direction of the calculation. Completion accounts are a negotiated transaction mechanism; the FRC's accounting standards provide the relevant financial reporting context but do not define the parties' commercial price bargain. ^[1]

Agree policies and prevent double counting

Set the hierarchy between specific contractual policies, agreed historic practice and the applicable accounting framework. Review debtors, stock, accruals, deferred revenue and transaction costs that could materially change the outcome. A phrase such as prepared consistently may be insufficient where historic treatment was unclear or the buyer expects a different approach. Obtain financial input before drafting fixes the calculation rules.

Identify items that could appear in more than one category. A tax balance, director loan or customer deposit should not be counted twice through debt and working capital unless the agreement deliberately requires that result. Keep an item-by-item classification schedule with examples. If a balance is excluded, explain where its economic effect is addressed so it does not disappear from the negotiation accidentally.

Preserve evidence at the completion date

Agree the time and records used for the cut-off. Capture bank evidence, stock information, debtor and creditor schedules and transactions close to completion. Identify who controls the books after the buyer takes over and how the seller will obtain the information needed for review. A calculation prepared months later can be disputed if essential evidence from the completion date was never preserved.

Plan for customer receipts, refunds and supplier bills that arrive later but relate to the relevant period. Record the agreed treatment and supporting evidence. Do not use later events selectively to improve one party's outcome while ignoring comparable evidence in another balance. The calculation should follow the negotiated policies rather than whichever information happens to favour the person preparing it.

Make review and disputes workable

Specify who prepares the accounts, the delivery deadline and the supporting information. Give the reviewing party a realistic opportunity to understand and question the calculation. Define objection requirements and what happens to items not disputed. A general right to review offers limited protection if access to the relevant records depends entirely on the other side's informal cooperation.

Agree the route for unresolved matters, including the scope of an independent accountant's role where used. Distinguish calculation issues from legal interpretation and alleged breaches of other obligations. Define appointment and cost arrangements. Use Earn-out terms: points to negotiate to distinguish an earn-out calculation and Selling a business with outstanding loans for debt repayment evidence, since those separate workstreams can affect the same numbers without sharing the same dispute mechanism.

For Business purchase due diligence support, bring the proposed definitions, recent accounts and an example calculation prepared with the financial adviser. Ask legal and accounting reviewers to resolve inconsistencies together. Keep the final policies and examples accessible after completion and diary preparation, objection and payment dates. The useful outcome is a reproducible calculation from agreed evidence, not a promise that normal annual accounts will automatically produce the intended purchase price.

Agree how late information will be handled

A supplier credit or customer dispute may become known after the first completion statement is prepared. Determine whether it provides evidence about the position at completion or concerns a later event. The agreed mechanism and policies should guide that distinction; the date a document arrives is not always the date of the underlying economic event.

Keep a schedule of subsequent information considered, the proposed treatment and its effect on the calculation. Share the evidence through the agreed review process rather than making unexplained changes to a spreadsheet. This gives each party a clear basis for accepting or challenging an adjustment and helps an appointed expert understand the issue if the parties cannot resolve it directly.

Illustrative scenario

A sale price assumes a normal level of working capital. The business receives a large customer deposit just before completion, increasing cash but also creating a delivery obligation. The parties apply the agreed definitions to avoid treating the receipt as an uncomplicated increase in value without considering the related liability.

Preparation checklist

• Define cash, debt and working capital items precisely.
• Agree accounting policies and an illustrative calculation.
• Set preparation, review and objection timetables.
• Identify the expert or other process for unresolved disputes.