---
title: "What Is Working Capital Adjustment?"
term: "Working Capital Adjustment"
description: "A working capital adjustment is a post-closing purchase price change in M&A when the company's actual net working capital at close differs from the agreed target or peg."
date: 2026-07-25T00:00:00.000Z
updated: 2026-07-25T00:00:00.000Z
topics: ["venture-capital"]
source: https://venturecapitaltracker.com/glossary/working-capital-adjustment
---

# What Is Working Capital Adjustment?

> A working capital adjustment is a post-closing purchase price change in M&A when the company's actual net working capital at close differs from the agreed target or peg.

**A working capital adjustment** true-ups the purchase price after close when net working capital differs from the negotiated [peg](/glossary/working-capital-peg) — protecting buyers from sellers draining liquidity pre-close.

### How it works

Typical M&A mechanics:

1. Parties agree **peg** — target net working capital (often trailing average)
2. **Closing balance sheet** measured within days of close
3. **Adjustment:** if actual NWC < peg, price drops $1 for $1 shortfall (within caps); if actual > peg, seller may receive add-back per collar rules

Definitions matter — which accounts count as current, treatment of debt-like items, and normalization for seasonality. Disputes go to independent accountants per purchase agreement.

Founders running asset-light SaaS may see minimal adjustments; inventory-heavy or services businesses with large AR/AP swings face bigger true-ups.

Venture-backed sellers should manage working capital in the final 60–90 days — accelerating payables or delaying receivables collection hurts adjustment math even if cash feels high.

### Why it matters

- **Founders:** Model proceeds net of adjustment scenarios in exit planning. Communicate with operators so close-week accounting matches peg methodology.
- **Investors:** Sponsors enforce pegs to avoid funding immediate post-close liquidity injections — adjustment economics are part of IRR.

### Common mistake

Treating enterprise value as all-cash to sellers without peg collar — a $2M working capital miss can erase expected distributions.

### Related ideas

See also [working capital peg](/glossary/working-capital-peg), [working capital](/glossary/working-capital), and locked box alternatives.

## FAQ

### What is a working capital adjustment in simple terms?

If the deal sets a target working capital level and you close with too little, the buyer reduces purchase price dollar-for-dollar — and may increase price if you deliver excess working capital, depending on terms.

### Why does working capital adjustment matter?

For founders, it prevents stripping cash before close but can claw back proceeds if AR or inventory run down. For buyers, it ensures they receive enough operating liquidity to run the business day one.


---
Source: https://venturecapitaltracker.com/glossary/working-capital-adjustment