TL;DR. Completion accounts settle the final price of a company sale after the deal has completed. The buyer pays an estimated price on the day, accounts are then drawn up as at completion, and the price moves pound for pound for the actual cash, debt and working capital. The alternative is a locked box, where the price is fixed at signing from an earlier balance sheet. Below: how the adjustment is calculated, the timetable, the expert who settles disputes, the accounting policies behind most arguments, and what a seller should prepare.
This guide is for owners and advisers selling a UK company. The price mechanism is chosen in the heads of terms, and the accounts are the last step of selling a business in the UK, after completion. The legal points are written for England and Wales; the accounting points apply across the UK.
Record the price mechanism, the working capital target and the accounts period in the heads of terms builder, then work out the tax on the final figure with the Business Asset Disposal Relief calculator. No email, no signup.
Open the builderWhat are completion accounts?
Completion accounts are accounts, usually a balance sheet, prepared as at the date a sale completes. The share purchase agreement (SPA) says how they are drawn up and what they are for: measuring the cash, debt and working capital the company actually had when the buyer took control, and adjusting the price to match.
The mechanism has three steps:
- An estimate at completion. Shortly before completion, an estimated completion statement is prepared, often by the seller and agreed with the buyer. The buyer pays a price based on it on completion day.
- Accounts after completion. Within a period set by the SPA, one side, usually the buyer because it now controls the books, prepares the completion accounts and a completion statement showing the final figures.
- A true-up. Once the accounts are agreed, or decided by an expert, the difference between the estimated and final price is paid: by the buyer if the price goes up, by the seller if it goes down.
The ICAEW Corporate Finance Faculty’s best-practice guideline on completion mechanisms describes completion accounts and the locked box as the two widely accepted ways of settling the final price. Much of this guide follows its structure.
When are completion accounts used?
Completion accounts suit a buyer who wants to pay for the business as it is on the day it takes control. They are often chosen when:
- There is no reliable recent balance sheet to fix a price on. A carve-out of one division from a larger company, a business whose last accounts are old or unaudited, or one that cannot produce dependable monthly balance sheets.
- Completion is some time after signing. If completion waits for a regulatory clearance or a third party’s consent, a buyer may not want to take the trading risk from an earlier date, which a locked box requires.
- Working capital swings. In a seasonal business, the cash and working capital on completion day can look very different from any fixed reference date.
- The sale is of assets rather than shares. The ICAEW guideline’s summary lists completion accounts, but not a locked box, as usable for trade and asset sales.
The same guideline notes that locked boxes lend themselves to sales with several bidders, because they avoid work after completion and give both sides certainty over the final equity value. Whichever you choose, settle it in the heads of terms.
Completion accounts or locked box: what is the difference?
With a locked box, the SPA fixes the price by reference to a balance sheet at an agreed date before signing, the locked box date. The economic risk and reward pass to the buyer from that date. The seller promises that no value will leave the company to the seller or people connected with it between the locked box date and completion (leakage), apart from agreed permitted leakage such as normal salaries. Because profits after the locked box date belong to the buyer, a seller may ask for a value accrual until it is paid, often a daily amount sometimes called a ticker.
| Completion accounts | Locked box | |
|---|---|---|
| When the final price is known | After completion, once the accounts are agreed | At signing |
| Balance sheet the price rests on | Completion date | Locked box date, before signing |
| When economic risk passes to the buyer | At completion | At the locked box date |
| Buyer’s main protection | The adjustment after completion | Warranties on the locked box accounts and a leakage covenant |
| Profits earned before completion | Stay in the company and raise the cash and working capital | Belong to the buyer; the seller may negotiate a value accrual |
| Work after completion | Draft, review, negotiation, sometimes an expert | Leakage claims, if any |
| Where disputes arise | The accounting treatment of individual items | Whether a payment was leakage |
Neither is better in the abstract. A locked box gives the seller a fixed number and a clean break. Completion accounts can suit a seller whose business builds cash before completion, but they keep the deal open for months and give the buyer, who now controls the books, the first draft.
How does the price adjustment work?
A buyer’s headline offer is usually an enterprise value on a cash-free, debt-free basis, assuming a normal level of working capital. What the seller receives for the shares is the equity value: the enterprise value, plus cash, less debt and debt-like items, plus or minus the difference between actual and normal working capital. Our guide to selling a business shows how the enterprise value is reached from adjusted EBITDA, and the free business valuation calculator runs the bridge on your own figures; completion accounts measure each item of the bridge on the completion date.
A worked example with illustrative figures:
| Estimate paid at completion (£) | Final completion accounts (£) | |
|---|---|---|
| Enterprise value | 4,000,000 | 4,000,000 |
| Add cash | 350,000 | 320,000 |
| Less bank loan | (600,000) | (600,000) |
| Less corporation tax and accrued bonuses, agreed as debt | (150,000) | (190,000) |
| Working capital against a £700,000 target | (20,000) | 30,000 |
| Price for the shares | 3,580,000 | 3,560,000 |
The seller was paid £3,580,000 at completion. The agreed accounts show £3,560,000, so the seller pays back £20,000, or it comes out of a retention. Each item is adjusted separately, and they can move in opposite directions.
What counts as cash?
Cash is normally taken at its book value, reconciled to the bank statements, and added pound for pound. The argument is over free cash against trapped cash: cash the business could not pay out without harming itself. The ICAEW guideline’s examples of cash a buyer may treat as trapped include cash in tills and petty cash, deposits held as security, for example on a leased property, cash ring-fenced for regulatory or contractual reasons, and cash held on behalf of customers or clients.
What counts as debt and debt-like items?
Debt is deducted pound for pound, including accrued interest and the cost of repaying it early. Debt-like items are liabilities that are not borrowing but were not reflected in the enterprise value, so the buyer wants them deducted too. The ICAEW guideline groups them like this:
| Widely accepted as debt | Usually debt-like | May be debt-like |
|---|---|---|
| Bank loans, overdrafts, accrued interest, break costs, finance leases, corporation tax | Invoice discounting and factoring, transaction costs, related party loans, change of control costs, deferred consideration, overdue tax, pension deficits, lease incentives, minority interests | Deferred income, bonuses, deposits, dilapidations, underspent capital expenditure, derivatives, legal claims |
The third column is where negotiations happen. Deferred income is the classic case: a buyer argues that customers have paid for a service the buyer must now deliver, so it is debt-like; a seller argues that taking payment in advance is a normal part of its cash cycle, so it belongs in working capital. The factors the guideline points to are whether the cost was already reflected in the earnings the price was based on, and how likely and how soon it turns into a cash outflow.
What is the working capital peg?
Working capital has no definition in UK GAAP or IFRS. In a sale it usually means current operating assets other than cash, such as stock, trade debtors and prepayments, less current operating liabilities, such as trade creditors, accruals and payroll liabilities. Anything treated as cash, debt or debt-like is left out, so nothing is counted twice.
The peg, or target, is the normal level of working capital the business needs to trade at the earnings level the price assumes. It is usually an average over a reference period; for a seasonal business, 12 months averages out the peaks and troughs. Without a working capital adjustment, a seller could raise the price by delaying supplier payments or chasing debtors hard before completion, and the price would depend on where in its cycle the business happened to complete.
For a seller, a lower peg is worth money pound for pound. Agree the definition and the figure in the heads of terms, use the same definitions to calculate the peg and the completion accounts, and check the reference period: if working capital has been growing, a recent or forecast period gives the buyer a higher target than a historical one.
What is the timetable for completion accounts?
The SPA sets every step and every deadline. The periods are negotiated; the 60 days below is an example, not a standard.
| Step | Who | When | What happens |
|---|---|---|---|
| Estimated completion statement | Usually the seller, with any buyer input the SPA requires | Shortly before completion | Estimates of cash, debt and working capital set the completion payment |
| Completion | Both | Completion day | Buyer pays the estimated price, less any retention or escrow |
| Draft completion accounts | Usually the buyer | A fixed period after completion, for example 60 days | Accounts and completion statement prepared under the agreed policies |
| Review | Seller and its accountants | A fixed review period | Seller checks the draft, with access to the books, records and staff |
| Notice of disagreement | Seller | Before the review period ends | Each disputed item, the reasons and the proposed figure; anything not disputed is normally treated as agreed |
| Negotiation | Both | A fixed period | The parties try to settle the disputed items |
| Expert determination | Independent accountant | If negotiation fails | The expert decides the items still in dispute |
| Payment | Whichever side owes | Within days of the final figure | The difference is paid, often first from a retention or escrow |
Two points catch sellers out. The deadlines bite: if no valid notice of disagreement is served in time, the draft usually becomes final. And the notice must meet the SPA’s requirements, typically each item, the reasons and the amount, so a general objection may not count. Make sure the SPA gives you and your accountants access to the records and finance team during the review.
How does the expert determination clause work?
Disputed items go to an independent chartered accountant appointed as an expert, not an arbitrator. The expert usually decides on written submissions, and the SPA normally makes the decision final and binding except for fraud or manifest error. A determination can be challenged in court only on narrow grounds, such as the expert answering a question they were not asked. The points worth negotiating:
- Who the expert is. Name a firm, or a short list, with no conflict on either side, and a fallback. The ICAEW guideline notes that a nomination by the President of the ICAEW is typically the back-up if the parties cannot agree.
- What the expert decides. Limit the referral to the items still in dispute, and say whether the expert may decide questions of interpretation of the SPA or only accounting questions.
- Costs. The guideline says costs are generally split equally unless the expert decides otherwise.
- Information cut-off. Say what information can be taken into account, for example events up to the date the draft is delivered, so that later hindsight does not reopen the accounts.
What is the accounting policies hierarchy?
Many completion accounts disputes come down to accounting policy, so the SPA sets an order of priority for how the accounts are prepared. The hierarchy the ICAEW guideline describes as normal is:
- Specific accounting policies agreed in the SPA for named items.
- Consistency with the last accounts: the same policies, practices and estimation techniques as the company’s last statutory accounts.
- Applicable accounting standards (GAAP), which for many UK private companies means FRS 102.
The order matters. A seller usually wants consistency to come before GAAP, because the price and the peg were worked out from accounts prepared the old way, and a change of method after completion moves the price. A buyer may want GAAP to win, so that any errors in the historical accounts are corrected. Where the two pull in different directions, the specific policies should settle it.
Agree specific policies for the items that call for judgement, which the guideline lists as including revenue recognition, holiday pay accruals, staff bonuses, bad debt provisions, contract provisions and litigation provisions, plus stock provisions and deferred income if they matter to your business. Attach a pro forma completion statement to the SPA, worked through on real figures from the last month end, so both sides can see where each balance goes and that nothing is counted twice.
How do retentions and escrow work?
Because the price can go down after completion, a buyer often wants security for the repayment:
- Retention. The buyer holds back part of the price at completion and pays it once the completion accounts are agreed, less any downward adjustment.
- Escrow. Part of the price is paid into an account controlled by a third party, often an escrow agent or the solicitors jointly, and released on joint instructions or the expert’s decision.
For the seller, the points are the size of the amount, which should reflect a realistic adjustment rather than a worst case, when it is released, who earns the interest, and keeping it separate from any warranty retention. The SPA can also cap the adjustment, or set a minimum below which none is paid.
What should the seller prepare?
Much of the work that protects a seller happens before heads of terms are signed, not after completion.
- Monthly balance sheets for at least the reference period the buyer will use for the peg, reconciled and consistent with the year-end accounts.
- A working capital analysis that shows the seasonal pattern and strips out one-off items.
- A net debt schedule: every loan, overdraft, lease, director’s loan and guarantee, with interest and early repayment costs.
- A list of possible debt-like items, with your position on each: corporation tax, bonuses, deferred income, customer deposits, dilapidations, aged creditors.
- A cash analysis separating free cash from cash that is held as a deposit, ring-fenced or held for clients.
- Draft specific accounting policies for the judgement items in your business, prepared with your accountant.
- Completion day arrangements: a stock count if stock matters, cut-off procedures and bank statements as at completion.
- Your own copy of everything you supplied. After completion the books belong to the buyer, and you will be reviewing their draft against the figures you gave them.
Most of this belongs in the financial folders of the due diligence data room anyway; our due diligence data room guide covers how to lay them out.
A price adjustment changes what you receive for your shares, and so your gain for Capital Gains Tax. Give your accountant the agreed figure, and rerun the Business Asset Disposal Relief calculator if it differs from the estimate.
Where do completion accounts disputes come from?
A 2016 survey of M&A professionals by Grant Thornton, cited in the ICAEW guideline, found completion accounts to be the leading cause of disputes, and deferred income the most debated item in price adjustments. The recurring causes:
- Classification. Whether an item is debt-like or working capital, and items counted in both.
- Provisions. Bad debt, stock and warranty provisions set more cautiously in the completion accounts than in the last accounts.
- New provisions. Liabilities that did not appear in the last accounts, so consistency gives no answer.
- Hindsight. Information that arrived after completion being used to restate the balance sheet at completion.
- Changes of method. A buyer applying its own group’s policies rather than the agreed hierarchy.
- Process. A notice of disagreement served late or without the detail the SPA requires, which can leave the seller bound by the buyer’s draft.
Nearly all of these can be headed off in the SPA: specific policies for the judgement items, a pro forma statement, an information cut-off date and a clear list of what is debt.
How Beamprobe fits
Completion accounts are argued over figures the seller supplied months earlier: management accounts, the working capital analysis, the debt schedule and the answers to the buyer’s accountants. Beamprobe is a UK virtual data room for that stage of a sale. Each buyer and adviser gets their own link, so you can see which documents each one opened, and the room exports as a ZIP of numbered PDFs with an index file, with the Q&A log as a CSV, so you keep your own record after the books change hands. Pro is £29 a month with no per-user fees, and the free plan covers one room of up to 10 documents.
Related reading
- How to Sell a Business in the UK: A Step-by-Step Guide
- Heads of Terms for a UK Business Sale: Guide and Template
- Disclosure Letters in a UK Share Sale: A Seller’s Guide
- Data Room for Due Diligence UK: Checklist + Guide
- Business valuation calculator
- Heads of terms builder
- Business Asset Disposal Relief calculator