Key Adjustments in a Purchase Agreement: What Business Owners Need to Know

When negotiating a purchase agreement, several adjustments are typically made to ensure the transaction is fair and reflects the true value of the business being bought or sold. These adjustments can have significant implications for both parties involved. 

Working Capital Adjustments

Working capital adjustments ensure that the buyer receives the business with a normal level of operating capital. This adjustment accounts for changes in current assets and liabilities from the time the purchase price is agreed upon to the closing date.

• Target Working Capital: A target amount is established, and any deviation from this target at closing is adjusted in the purchase price.

• Purpose: To ensure the buyer isn’t left with insufficient working capital to run the business post-acquisition.

Net Asset Adjustments

Net asset adjustments are made to reflect changes in the value of the business’s tangible and intangible assets and liabilities.

• Asset Valuation: Adjustments may be necessary if the value of assets like inventory, equipment, or real estate changes between agreement and closing.

• Liability Consideration: Any unexpected liabilities discovered during due diligence, such as pending lawsuits or debt, can lead to adjustments.

Earn-Out Adjustments

Earn-out provisions link part of the purchase price to the future performance of the business. This mechanism adjusts the final price based on achieving specific financial or operational targets post-acquisition.

• Performance Targets: These can include revenue, profit margins, or customer retention rates.

• Adjustment Mechanism: If targets are met or exceeded, the seller receives additional compensation; if not, the final price may be lower.

Purchase Price Adjustments for Contingencies

Contingencies in a purchase agreement address potential risks or uncertainties identified during the due diligence process. Adjustments ensure that any unforeseen issues that arise post-closing are accounted for.

• Holdbacks or Escrows: Part of the purchase price may be held in escrow to cover potential liabilities or claims.

• Reimbursement Clauses: Agreements might include clauses for reimbursement if specific risks materialize within a certain period post-closing.

Closing Date Adjustments

Adjustments are often made to account for the actual financial performance and condition of the business up to the closing date.

• Prorations: Adjustments for items such as rent, utilities, and prepaid expenses are prorated to ensure each party pays their fair share up to the closing date.

• Revenue Recognition: Adjustments might be made to ensure revenues and expenses are recognized accurately up to the point of transfer.

Navigating the complexities of purchase agreement adjustments requires expertise and careful consideration. Contact us today to learn how we can assist you in structuring and negotiating your purchase agreement to reflect the true value of your transaction. Understanding and anticipating these common adjustments can help business owners negotiate more effectively and achieve a successful and equitable deal.

For additional industry data, visit U.S. Small Business Administration.

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Purchase Agreement Pitfalls in Home Services Deals

Home services acquisitions — particularly PE roll-ups of HVAC, plumbing, and electrical companies — have several purchase agreement dynamics that catch sellers off guard. If you’re selling your home services business, here’s what to watch for.

Working capital targets are the #1 post-closing dispute. In home services, working capital fluctuates significantly with seasonality. An HVAC company’s working capital in July (peak install season, high receivables, heavy equipment inventory) looks very different from January. Buyers will typically peg the working capital target to a trailing 12-month average — but the timing of your close date matters. If you close during a seasonal low and the target was set on an annual average, you’ll owe the difference. Negotiate the measurement period carefully and make sure it reflects normal operating conditions.

Maintenance agreement liability creates a hidden adjustment. If you have 1,500 active maintenance agreements at $200/year, a buyer may argue that there’s $150,000-$200,000 in deferred revenue liability — you’ve collected the money but haven’t performed all the visits yet. Some buyers deduct this from the purchase price or working capital. Push back on this: the agreement base is a strategic asset (those customers convert to replacements at 3-4x the rate of non-agreement customers), and the cost to fulfill the remaining visits is typically far less than the deferred revenue amount.

Earnout provisions are more common than you’d expect. In home services deals, especially in the $3M-$10M range, expect 10-30% of the purchase price to be structured as an earnout tied to post-closing revenue or EBITDA targets. This is the buyer’s way of bridging a valuation gap. The risk: if the buyer changes your marketing strategy, cuts your team, or redirects leads to another branch post-acquisition, hitting those targets becomes much harder. Negotiate earnout provisions that you can actually control — and make sure the agreement specifies that the buyer can’t materially change operations in ways that impact your ability to earn.

Non-compete and non-solicit scope matters. Home services purchase agreements almost always include a non-compete (typically 3-5 years, 50-100 mile radius) and a non-solicitation of employees and customers. In home services, the non-solicit of technicians is particularly impactful because you likely have personal relationships with your crew. Make sure the duration and scope are reasonable — a 5-year, 100-mile non-compete in a metro area like Dallas or Phoenix effectively prevents you from working in the industry for half a decade.

Representations and warranties around customer data. If you’re running ServiceTitan, Housecall Pro, or another platform, the buyer will want representations that your customer data is accurate and that you have the right to transfer it. Make sure your customer database is clean — duplicate records, missing contact info, and inactive customers counted as “active” all create friction in diligence and can lead to purchase price adjustments.

Having a fractional CFO and an experienced M&A attorney review your purchase agreement before you sign is essential. The headline purchase price means nothing if the adjustments, earnouts, and working capital provisions quietly reduce what you actually receive by 15-25%.

Related: What EBITDA adjustments are made when selling a business

About the Author

Raymond Gong

Raymond Gong is the founder and managing partner of Profitability Partners, a fractional CFO and bookkeeping firm serving small to mid-sized businesses nationwide. With expertise spanning financial reporting, cash flow management, tax planning, and ServiceTitan accounting integration, Raymond helps home services companies, startups, and growing businesses build the financial infrastructure they need to scale confidently. He specializes in translating complex financial data into clear, actionable insights — so owners can make smarter decisions about growth, profitability, and exit planning. Based in Tampa, FL, Raymond works with clients across HVAC, plumbing, electrical, and roofing to optimize their books, streamline reporting, and prepare for what's next.

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Raymond Gong

Raymond Gong is the founder and managing partner of Profitability Partners, a fractional CFO and bookkeeping firm serving small to mid-sized businesses nationwide. With expertise spanning financial reporting, cash flow management, tax planning, and ServiceTitan accounting integration, Raymond helps home services companies, startups, and growing businesses build the financial infrastructure they need to scale confidently. He specializes in translating complex financial data into clear, actionable insights — so owners can make smarter decisions about growth, profitability, and exit planning. Based in Tampa, FL, Raymond works with clients across HVAC, plumbing, electrical, and roofing to optimize their books, streamline reporting, and prepare for what's next.