Working Capital Adjustment
Also known as: WCA · Net Working Capital Adjustment
A working capital adjustment trues up the purchase price at close based on whether the agency delivered the expected level of net working capital (current assets minus current liabilities) on the closing date.
What is working capital adjustment?
Buyers expect that an agency comes with a normal level of working capital at close — enough to cover the next month or two of operations without needing immediate cash injection. If the seller has been pulling cash out aggressively in the months before close, the working capital can be artificially low; if the seller has been letting receivables build, it can be artificially high.
The working capital adjustment locks in a target (the 'peg'), measured against the agency's recent average. At close, actual working capital is compared to the peg. If actual is below peg, the seller refunds the difference. If above, the buyer pays the difference.
For agencies, the working capital math is dominated by accounts receivable timing on agency-bill business and trust account balances. It rarely makes or breaks a deal but routinely produces $50K–$300K of true-up at close.
Why it matters in agency valuation
Sellers who don't understand working capital often get surprised at close by a $100K+ refund obligation. Run the trailing-three-month average WCA before signing the LOI so you know what the peg will be and you don't drain the agency in the months leading up.
Example
Related terms
A letter of intent (LOI) is a non-binding outline of the major economic and structural terms of a proposed acquisition, signed before formal due diligence begins.
An asset sale transfers specific assets of the agency (the book of business, contracts, equipment) to the buyer while leaving the legal entity behind with the seller — the most common structure in P&C agency transactions.
Last reviewed: April 24, 2026
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