The number a founder remembers is the one on the LOI. The number that hits the bank account is something else entirely. Between the two sits an expansive schedule of balance-sheet mechanics that most sellers do not fully understand, and it moves millions in proceeds.
On a $100M deal, the gap between enterprise value and the equity that wires at close is routinely 15 to 25 percent. That gap is negotiated line by line by diligent, expensive specialists whose job is to reduce the proceeds paid to founders.
The bridge from EV to equity
Most deals are priced "cash-free, debt-free." Sellers keep the cash and pay off the debt, and they leave behind a "normal" amount of working capital. That creates three negotiated baskets, cash, indebtedness, and working capital. Together they make up net debt, and each one is a lever the buyer can pull on the way from the headline number to the wire.
Each basket is set by people, not formulas. And on the buyer’s side, three separate firms are paid to work them.
The diligence asymmetry
The founder calls the books accrual. Sometimes they are. Almost always there are exceptions, and three diligence firms, all paid by the buyer, will find them. The findings that add to liabilities get logged. The ones that add to assets quietly do not.
- Quality of earnings restates the P&L, and the balance sheet with it. Deferred commissions, accrued bonuses, miscategorized prepaids: accrual exceptions become reclassifications, and reclassifications hit the working-capital peg.
- Tax hunts for the contingent liability: sales-tax nexus, misclassified contractors, uncertain positions. Each becomes a reserve, an escrow, or a holdback.
- Commercial re-grades the customer book. Deferred-revenue cohorts, customer deposits treated as debt-like, one-time revenue stripped from run-rate. Each finding flows back to working capital.
The asymmetry is the point. Across the three firms, millions of liabilities surface, while legitimate asset add-backs, the understated royalty income, the unbilled receivables, the missed R&D credit, are left on the floor because no one on the buyer’s side is paid to find them.
Many of those findings land in one place: the working-capital peg. And working capital is not a static number, it moves with the business.
Flattening the working capital cycle into one number
Working capital is the money tied up in running the business between paying suppliers and getting paid by customers. The cycle has a rhythm, and the rhythm has seasons. The peg averages the whole cycle into a single figure. The closing date determines who benefits from that average, and the buyer usually controls the date.
- At minimum, deferred revenue should be moved out of indebtedness and into working capital.
- Business seasonality must inform the peg basis: trailing twelve, six, or three months, or a weighted average, depending on the revenue pattern.
The deferred revenue dial
For software businesses, deferred revenue is often the single largest current liability on the balance sheet. Meaning it has the greatest impact on shareholder proceeds. The buyer treats every deferred dollar as debt owed at face value. The seller marks it at cost-to-deliver. That gap is pure gross margin, and for SaaS that is most of the revenue.
What a negotiator can recover
Take the same business, the same close date, the same buyer. Run it once with a senior negotiator on the seller’s side and once without. On an identical balance sheet, the two outcomes differ by millions.
Where net debt is won
Working capital is not "addressed at close." It is shaped before the LOI, defined in the LOI, defended during diligence, and reconciled after. Value is won or lost at each of those four stages.
- Before the LOI, clean the book. GAAP-conform the last 18 months, identify deferred-revenue cohorts, pre-list every accrued item. By the time the buyer’s team digs in, there should be nothing left for them to discover.
- In the LOI, define the terms. Working-capital peg methodology, deferred-revenue treatment, cash and indebtedness definitions.
- During diligence, defend the schedule. Three firms surface findings; each finding meets a counter-finding. Asset add-backs require the same advocacy as liability add-ons.
- After close, survive the true-up. Forty-five days, both sides re-run the math, disputes go to an independent accountant. The escrow is the seller’s, until proven otherwise.
Everyone celebrates the number in the LOI. What actually reaches the founder’s account is settled weeks later, in the net debt negotiations, where the quiet leverage lives.