Meaning
Accounting reconciliations occur after a transaction closes to account for changes in working capital or net debt between the signing and the closing.
Settlement Accuracy
Reconciling the final accounts ensures that the purchase price reflects the actual state of the business at the moment of transfer. These true-up adjustments prevent one party from being disadvantaged by the time lag inherent in complex deals. Accuracy is the standard.
Post-Exit Work
Founders often remain tied to the accounting department for weeks or months after they have technically left their executive seat. Managing true-up adjustments requires a meticulous review of bank statements and inventory counts to justify every dollar of the purchase price. This work is a substantial drain on the capacity of the individual to move to a new project.
It involves deep dives into historical ledgers and the resolution of discrepancies with the buyer’s audit team. The hours spent on this retrospective task prevent the individual from focusing on new ventures and prevent the individual from starting a recovery period.
Reconciliation Limit
Period for these corrections is strictly limited by the purchase agreement, usually lasting between thirty and ninety days. Once the window for true-up adjustments closes, the transaction price is considered final and no further claims regarding the closing balance sheet are permitted.
