- Businesses don't hold still on closing day.
- Many of these disputes trace back to the same root cause: the purchase agreement wasn't specific enough, upfront, about exactly which accounting methodology and conventions would govern…
- Review the Final Closing Statement Carefully When the seller (or buyer, depending on who prepares it under the agreement) delivers the final statement, compare it line by line against…
A lot of Ontario business sales are priced using an estimate at closing, then trued up afterward against actual numbers — often centred on working capital, and frequently including a physical inventory count. When the buyer's numbers and the seller's numbers don't match, the purchase agreement usually has a built-in process for sorting it out. Here's how that process typically works.
Why This Adjustment Exists in the First Place
Businesses don't hold still on closing day. Inventory levels shift, receivables get collected or written off, payables get paid down or pile up. Rather than trying to price the deal to the exact minute of closing, many purchase agreements use a two-step approach:
- An estimated closing statement, prepared just before or at closing, sets the initial purchase price adjustment.
- A final closing statement, prepared afterward using actual figures (sometimes including a physical inventory count), true up the price to what it should have been.
The difference between the estimate and the final number becomes a payment one way or the other — and it's exactly where disputes tend to arise.
Where Disagreements Usually Come From
| Issue | What Typically Happens |
|---|---|
| Inventory count discrepancies | Physical counts differ from book records, or the parties disagree about how to value slow-moving or obsolete stock |
| Accounts receivable | Disagreement over which receivables are actually collectible and should count toward working capital |
| Accrued liabilities | Disputes over whether certain obligations (unpaid vacation pay, unbilled expenses) were properly accrued |
| Accounting methodology | The parties' accountants apply different methods or assumptions than what the agreement actually specifies |
| Timing | Transactions or adjustments recorded in the wrong period, shifting the numbers to one side's advantage |
Many of these disputes trace back to the same root cause: the purchase agreement wasn't specific enough, upfront, about exactly which accounting methodology and conventions would govern the calculation.
The Typical Dispute Process, Step by Step
1. Review the Final Closing Statement Carefully
When the seller (or buyer, depending on who prepares it under the agreement) delivers the final statement, compare it line by line against the agreed methodology and your own records — don't just look at the bottom-line number.
2. Deliver a Formal Notice of Objection
Purchase agreements typically set a defined window for the other party to object to the final statement, and require the objection to identify the specific items in dispute, not just a general disagreement with the total.
3. Attempt to Resolve Directly
Many agreements build in a negotiation period first, where the parties (often through their accountants) try to narrow or resolve the disputed items before escalating.
4. Refer Unresolved Items to an Independent Accountant
Where the parties can't agree, purchase agreements commonly provide for referral of the remaining disputed items to an independent accountant or accounting firm, who reviews the specific disputed items (not the whole deal) and issues a determination that both sides typically agree in advance to treat as binding.
5. Implement the Determination
Once the independent accountant's determination is final, the purchase price adjustment is calculated and paid according to the agreement's mechanics — sometimes drawn from a holdback set aside for this purpose.
What to Gather Before You Dispute a Figure
- [ ] The final closing statement and the estimated closing statement, side by side.
- [ ] The purchase agreement's specific definitions of working capital and the agreed accounting methodology.
- [ ] Underlying records for the specific items you're disputing — inventory counts, aging reports for receivables, supporting documents for accruals.
- [ ] A clear, itemized list of exactly which figures you dispute and why, rather than a general objection to the total.
- [ ] The relevant notice deadline from the agreement, so your objection is delivered on time.
Frequently asked questions
Who pays for the independent accountant if there's a dispute?
This is a negotiated term set out in the purchase agreement itself — arrangements vary, and some agreements split the cost based on how close each side's position was to the final determination. Check your specific agreement rather than assuming a default rule.
What if I miss the deadline to object to the closing statement?
Many agreements treat the closing statement as final and binding if no objection is delivered within the specified window. This makes the deadline one of the more important dates to track closely after closing, not something to let slip.
Can we just agree to skip the independent accountant and negotiate directly?
Generally yes, if both sides prefer that — the accountant referral mechanism is usually there as a fallback for when direct negotiation doesn't resolve things, not a mandatory first step in every case. Check whether your agreement requires it as a precondition, though, before assuming you can bypass it.
Is a working capital dispute the same as a breach of warranty claim?
No. A working capital or inventory dispute is usually about applying an agreed formula correctly to the actual numbers, while a breach of warranty claim is about whether a specific statement in the agreement was true. The two can sometimes overlap on the same underlying facts, but they're analyzed differently under most agreements.
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