Closing Accounts or Locked Box: Two Ways to Settle the Final Price When You Sell Your Business

The Problem: A Lot Happens Between Handshake and Closing

Picture this: after months of negotiations, you and the buyer have agreed on a purchase price of CHF 10 million. The contract is signed. Then, two months later, you receive a letter claiming the company had less equity than agreed — and demanding CHF 400,000 back. Can that happen? Absolutely. It happens when the wrong price adjustment mechanism is used, or when the seller didn't fully understand what they signed.

Two mechanisms dominate M&A transactions when it comes to determining the final purchase price: the Locked Box and Closing Accounts. Both solve the same problem — who bears the economic risk of the business while the sale process is running — but in fundamentally different ways.

Selling a business isn't like buying something off a shelf. Between agreeing on a price and actually completing the transaction (the "closing"), months can pass. During that time, the business keeps running: invoices go out, customers pay, inventories shift, investments are made or deferred. The value of the business changes daily.

Who bears that risk — and who benefits from those changes? That's exactly what Locked Box and Closing Accounts govern.

Locked Box: The Price Is Set — Full Stop

With a Locked Box, the seller and buyer agree on a specific historical date — typically the last year-end or quarter-end balance sheet. The purchase price is calculated based on that balance sheet and fixed. From that date forward, the buyer economically owns the business — even if the contract hasn't been signed yet and no money has changed hands.

The name says it all: the box is locked. Whatever is inside belongs to the buyer — and anything taken out by the seller in the meantime (dividends, inflated management fees, unusual payments) is called leakage — contractually prohibited, or subject to repayment.

The price is not adjusted after closing.

Closing Accounts: Pay First, Settle Later

With Closing Accounts, the purchase price is initially set based on an estimate. On the closing date — or shortly after — a dedicated balance sheet is prepared reflecting the actual financial position of the company at that specific moment. From this balance sheet, the actual figures for equity, net debt, and working capital are extracted.

If those figures differ from the agreed targets, the purchase price is adjusted up or down accordingly. The buyer pays a preliminary price at closing; the final settlement follows weeks or months later.

Pros and Cons: What Suits Whom?

Locked Box

For the seller: Price certainty. Once the box is locked, there are no nasty surprises. The agreed price is the final price — no renegotiation, no post-closing disputes over accounting. No post-closing burden: once you've closed, you're done. A clean break — ideal if you want nothing more to do with the business after closing.

Downsides: The seller continues bearing operational risk without reaping the economic upside until closing. If the business performs exceptionally well in the interim, the buyer benefits. Negotiating permitted vs. prohibited leakage can get complicated.

For the buyer: Better budget certainty, but they take on economic risk from the locked box date — even if the closing is delayed.

Closing Accounts

For the buyer: They pay for exactly what they receive at closing. Protection against negative developments between signing and closing.

Downsides for the seller: Price risk after closing — you don't know exactly what you'll receive until weeks or months after the deal is done. Significant dispute potential over accounting policies and definitions — sometimes ending before an arbitration panel. Ongoing involvement required after closing.

A Concrete Example

Say you own a precision machining business in Winterthur with CHF 8 million in revenue. You and a strategic buyer have agreed on an enterprise value of CHF 9 million. The purchase agreement is signed in March, with closing scheduled for May.

Scenario A: Locked Box

The locked box date is 31 December — the last annual accounts. The balance sheet shows net debt of CHF 1 million and working capital in the normal range. The equity value is therefore CHF 8 million. That's the price. In May, that amount is paid.

Between January and May, the business keeps running. A major customer pays an outstanding invoice of CHF 200,000 — increasing cash on hand. But the price doesn't move. The buyer benefits, since they've been the economic owner since January. To compensate, the seller typically receives a locked box interest — a daily accrual on the purchase price for the period between the reference date and closing, which partially offsets this effect.

If the seller pays himself an unusually high bonus in February or declares a special dividend, that's leakage — and must be refunded.

Scenario B: Closing Accounts

Same deal, but using closing accounts. In March, a preliminary price of CHF 8 million is paid, based on an estimate of the balance sheet at closing. After the May closing, a completion balance sheet is prepared. The finding: working capital is CHF 300,000 below the agreed target. The buyer claims a price adjustment of CHF 300,000.

Now the debate begins: Was the inventory build operationally necessary, or was it artificially inflated? How should working capital be calculated? These discussions can drag on for months and cost significant legal fees — on both sides.

What's Better for SME Sellers?

There's no universal answer — but a clear lean: for most SME sellers, the Locked Box is preferable, provided the books are clean and the latest annual accounts are current. The reason is straightforward: price certainty and a clean ending.

Closing Accounts make sense when the business is highly seasonal, when the closing date is far in the future, or when working capital swings significantly and the buyer isn't willing to absorb that risk.

One thing applies regardless: these clauses are not boilerplate. Get an experienced M&A advisor and a specialist lawyer before you sign anything. The headline price is on the cover page — but the real money is often buried in the schedules.

This article is based on standard M&A market practice and does not cite external data sources. The concepts, examples, and analysis reflect established transaction structuring practice in Swiss and European M&A.