4. Factor in pre-close accounting
Some buyers might not have the time, resources, or knowledge base to dig into past account balances and other financials of the target company. And if those financials are accepted at face value and make their way into the target's working capital, the buyer might not find out until post-close that a certain account balance is not what was expected. By that point, the buyer will have to expend extra time and effort to initiate a post-closing dispute and still might not be successful in obtaining a purchase price reduction. Ultimately, the responsibility falls on the buyer to look at or understand every single material account before the purchase, which might not be possible given timing and resources. In addition, in some cases, a CFO or person in another accounting role from the target company might not be the best person to identify these types of adjustments that favor the buyer, as legacy seller employees might have economic interests in the company being sold, so it’s important to determine whether anyone in charge of accounting has incentives to find potential upsides or downsides either way.
Most transactions are an intense and time-consuming process, even without the extra effort of a post-close dispute. Taking the time up front to determine whether a company has resources, knowledge base, and time to manage a transaction (especially on top of all other duties) is one of the best ways to help avoid that extra effort and get the deal done sooner and without lingering areas for resolution.