Selling Price is important, but Total Proceeds are King

That famous business owner question … what is my business worth, really means how much will I get in my blue jeans.?

Total Proceeds

Typically, there are 3 main contributors to Sellers’ total proceeds:

  • Offer Price – Cash at closing and any Promissory Note;
  • Final Adjustments – including excess transferred Working Capital settlement payment after Closing;
  • Balance Sheet Discharges.


In most private lower mid-market transactions involving a Share Sale which includes the transfer of an operational balance sheet, the Offer Price is based upon a multiple of cash flow – which includes all the assets in the business as well as Net Working Capital – one of the most important asset classes.

The definition of Working Capital can be anything the Seller and Purchaser agree it should be. Generally speaking, the accounting profession in North America defines Working Capital as Current Assets minus Current Liabilities. Commonly, in M&A advisor managed transactions, Working Capital can be defined as simply as Accounts Receivable + Inventory (including Work in Progress) minus Trades Payable. To ensure sufficient operating capital is left in the business at closing, some level of Cash may also be included in the definition. Typically, no long-term liabilities or debt or unrelated assets (life insurance) are left on the Balance Sheet at the Close.

The Offer

A pro-forma Statement of Working Capital Adjustments (SWCA) can be prepared to show the Seller the mechanics of the calculations, using an internal YTD Balance Sheet together with the Offer, and to show the potential Offer’s full value. This is a precursor to the actual final SWCA prepared by the Seller’s accounting firm 4 to 5 months after the Close, based upon the final Balance Sheet.

Any excess or shortfall to the Offer’s stated level of Working Capital is adjusted … with an excess balance the Purchaser writes a cheque to the Seller, any shortfall the Seller writes a cheque to the Purchaser.

The full value of a deal is the Offer Price – Cash at closing and any promissory note, together with the Final Adjustments – excess transferred Working Capital settlement payment after Closing.


Balance Sheet discharges at Closing can include the Seller removing excess Cash out of the business and life insurance policies, the returning of Shareholder Loans, and the payment of government payables – all other Current Liabilities.

Total Proceeds

The Total Proceeds from a sale … Offer Price + Final Adjustments + Discharges … can be presented in a Net to Owners Analysis (NTOA), and shows the bottom line that Sellers are eventually concerned about the most.

We have found that the NTOA statement can be used by your M&A Advisor at multiple stages throughout the selling process, at the following times:

  • Valuation
  • Listing
  • Each and every Offer
  • Closing
  • Final Settlement – a check and balance for the accountants and lawyers

We have found that Sellers sell and close, when there are no surprises around their eventual Total Proceeds.

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Questions or comments on this article can be directed to:

Neil Thomson, CBI, M&AMI
[email protected]