Working Capital Adjustment Template: Buying a Business in Australia

Working Capital Adjustment Template — Australian Business Acquisition

Use this template during due diligence and reference it directly in your SPA. Both buyer and seller should agree on the line items and methodology before the SPA is executed — disputes are much harder to resolve after signing.

---

How to Use This Template

1. Before signing the SPA: Complete Section 1 using 12 months of historical financials. Agree the peg with the seller. Attach to the SPA as a schedule.
2. During due diligence: Verify the historical data underlying the peg. Flag any unusual items.
3. At settlement: Seller provides Section 2 actuals. Buyer's accountant reviews within the agreed review period (typically 5–20 business days post-completion). Calculate Section 3 adjustment.
4. Post-settlement: Any adjustment is paid within the agreed timeframe (usually 5 business days after the review period closes).

---

Section 1: Agreed Working Capital Peg

Calculate from the average of the last 12 months' monthly management accounts, or the last 3 months if the business is seasonal. Record the agreed methodology here so there's no dispute later.

Peg calculation method (circle one): 12-month average | 3-month average | Specific reference date | Other: ___________

Reference period: _____________ to _____________

1A. Current Assets Included in Working Capital

Line Item	Month 1	Month 2	Month 3	12-Mo Avg	Include?	Notes
Trade receivables (debtors under 90 days)	$	$	$	$	☐ Yes ☐ No
Unbilled work in progress (WIP)	$	$	$	$	☐ Yes ☐ No
Raw materials / consumables stock	$	$	$	$	☐ Yes ☐ No
Finished goods inventory	$	$	$	$	☐ Yes ☐ No
Prepaid expenses (under 12 months)	$	$	$	$	☐ Yes ☐ No
Other agreed current assets	$	$	$	$	☐ Yes ☐ No	Specify:
Total Current Assets (WC)	$	$	$	$

Excluded from working capital (document exclusions explicitly):

• Cash and cash equivalents (excluded — buyer pays for these separately or they're stripped pre-sale)
• Tax refunds / GST credits (excluded — remain with seller unless otherwise agreed)
• Debtors older than 90 days (excluded unless specifically agreed — collectability is uncertain)
• Related-party receivables (excluded — these typically won't collect)
• Capital work in progress (excluded — this is capex, not working capital)

1B. Current Liabilities Included in Working Capital

Line Item	Month 1	Month 2	Month 3	12-Mo Avg	Include?	Notes
Trade payables (creditors)	$	$	$	$	☐ Yes ☐ No
Accrued liabilities (wages, leave accruals)	$	$	$	$	☐ Yes ☐ No
Deferred revenue / customer deposits	$	$	$	$	☐ Yes ☐ No
GST payable (current quarter)	$	$	$	$	☐ Yes ☐ No
Other agreed current liabilities	$	$	$	$	☐ Yes ☐ No	Specify:
Total Current Liabilities (WC)	$	$	$	$

Excluded from current liabilities (document exclusions explicitly):

• Bank debt / finance facilities (excluded — treated separately in the price)
• ATO debt (excluded — seller's liability, must be cleared before settlement)
• Director loan accounts (excluded — settled separately)
• Annual leave / long service leave accruals (check SPA — sometimes transferred, sometimes seller settles these)

1C. Agreed Working Capital Peg

	Amount
Total Current Assets (from 1A average)	$
Less: Total Current Liabilities (from 1B average)	$
Agreed Working Capital Peg	$
Permitted variance / collar (+/−)	$
Notes on seasonality adjustments:

Tip: A collar of ±5% of the peg is common for small businesses. Adjustments are only triggered if the actuals fall outside the collar. This avoids micro-disputes over immaterial movements.

---

Section 2: Completion Date Actuals

Prepared by the seller's accountant as at the agreed completion date. Buyer's accountant reviews within the agreed period. Use the same line items as agreed in Section 1.

Completion date: _____________ Actuals prepared by: _____________ (firm + name) Date provided to buyer: _____________ Buyer review deadline: _____________ (typically 10–20 business days from completion)

2A. Current Assets at Completion

Line Item	Completion Amount	Supporting Document	Agreed?
Trade receivables	$	Aged debtors report	☐
Unbilled WIP	$	WIP schedule	☐
Stock / inventory	$	Stock count	☐
Prepaid expenses	$	Schedule	☐
Other (as agreed)	$		☐
Total Current Assets	$

Buyer's notes / disputed items:

• Item: _______________ | Buyer's figure: $ _______ | Reason: _______________
• Item: _______________ | Buyer's figure: $ _______ | Reason: _______________

2B. Current Liabilities at Completion

Line Item	Completion Amount	Supporting Document	Agreed?
Trade payables	$	Aged creditors report	☐
Accrued liabilities	$	Schedule	☐
Deferred revenue	$	Customer deposit list	☐
GST payable	$	BAS / Xero extract	☐
Other (as agreed)	$		☐
Total Current Liabilities	$

Buyer's notes / disputed items:

• Item: _______________ | Buyer's figure: $ _______ | Reason: _______________
• Item: _______________ | Buyer's figure: $ _______ | Reason: _______________

2C. Actual Working Capital at Completion

	Amount
Total Current Assets at Completion	$
Less: Total Current Liabilities at Completion	$
Actual Working Capital	$

---

Section 3: Adjustment Calculation

3A. Base Calculation

	Amount
Agreed Working Capital Peg (from Section 1C)	$
Actual Working Capital at Completion (from Section 2C)	$
Difference	$
Is this within the collar? (±$_______)	☐ Yes — no adjustment triggered ☐ No — adjustment applies

3B. Adjustment Direction

Scenario	Adjustment
Actual WC > Peg (business arrived with more WC than agreed)	Buyer pays seller the excess
Actual WC < Peg (business arrived with less WC than agreed)	Seller pays buyer the shortfall
Actual WC within collar	No adjustment

Adjustment amount payable: $_______________ Direction: ☐ Buyer pays seller ☐ Seller pays buyer ☐ No adjustment Payment due within: _____ business days of agreement / determination Payment method: ☐ Bank transfer ☐ Withheld from deferred consideration ☐ Other: _______

3C. Worked Example

For reference: how this looks in a typical small business transaction.

	Amount
Agreed peg	$120,000
Collar (±5%)	±$6,000
Actual working capital at completion	$91,000
Shortfall	$29,000
Within collar?	No ($29,000 > $6,000 collar)
Adjustment: seller pays buyer	$29,000

In this example, the seller's final proceeds are reduced by $29,000. If this is a deal with a holdback, the adjustment is typically drawn from the holdback first.

---

Section 4: Dispute Resolution

If buyer and seller cannot agree on the actuals within the review period, this section governs escalation.

4A. Escalation Procedure

1. Informal resolution period: _____ business days from buyer's review deadline. Both parties attempt to resolve disputed items directly.
2. Expert determination: If not resolved, either party can refer disputed items to an independent expert — typically a Big 4 or mid-tier accounting firm agreed by both parties (or, failing agreement, nominated by the president of the relevant state CPA/CA chapter).
3. Expert's determination: Final and binding on both parties. Expert's fees shared equally unless the disputed amount is resolved substantially in one party's favour, in which case the losing party bears costs.

4B. Disputed Items Register

Item	Seller's Position	Buyer's Position	Amount in Dispute	Resolution	Date
	$	$	$
	$	$	$
	$	$	$

---

Section 5: SPA Drafting Checklist

Use these notes when reviewing the working capital provisions in your SPA. Share with your solicitor.

• Working capital definition is explicit — lists included/excluded items, not just "current assets minus current liabilities"
• Peg is attached as a schedule (not just referenced)
• Permitted variance / collar is stated
• Accounting policies for preparing completion accounts are agreed (same GAAP basis as historical accounts)
• Review period is defined (recommend 10–20 business days, not calendar days)
• Escalation mechanism is clear — who nominates the expert, on what timetable, who pays
• Adjustment payment timing is clear (recommend 5 business days after agreement or determination)
• Relationship between working capital adjustment and any holdback/escrow is defined
• Leave accruals treatment is explicit — transferred to buyer or settled by seller pre-completion
• ATO / super obligations current at completion — confirm clearance or escrow arrangement
• Interim period conduct restrictions — seller cannot take actions to artificially influence working capital between signing and completion

---

Section 6: Common Traps and How to Avoid Them

Trap	How It Happens	Prevention
Debtors artificially inflated	Seller raises invoices pre-completion for work not yet done	Reconcile WIP schedule against job management software at completion
Payables stripped	Seller pays creditors early to reduce payables and boost WC	Compare payables at completion to 12-month average; flag outliers
Stock count not verified	Buyer accepts seller's stock schedule without physical count	Require a physical stock count at or close to completion date
Leave liabilities excluded then transferred	SPA silent on leave accruals; buyer assumes seller's obligation	Confirm in SPA whether annual leave / LSL transfers to buyer or is paid out
Revenue deferred to inflate WC	Seller pre-receives cash from customers without delivering service, creating deferred revenue liability that's excluded from WC calc	Include deferred revenue as a current liability in the agreed definition
ATO debt hidden	Seller has outstanding PAYG withholding or super obligations	Obtain ATO portal access via accountant; verify clearance pre-completion

---

This template is a practical starting point, not legal advice. Have your solicitor review the working capital provisions in your SPA before signing. The specific line items that apply will depend on the nature of the business — a landscaping business will have very different working capital components to a retail distributor.