A treatment center owner can agree to an attractive purchase price and still misunderstand the cash coming at closing. Working capital is one reason. The agreement may require delivery of a defined amount of operating assets, less specified operating liabilities, with a price adjustment for any difference. Before accepting a proposal, work through the accounts, calculation, and settlement process. A treatment center sale working capital schedule should be understandable enough that your controller can reproduce it without guessing what the buyer intended.
In a target-based structure, the parties set a working capital target, sometimes called the peg. They compare the agreed closing working capital balance with that target. A surplus can increase the price; a shortfall can reduce it, subject to the contract. A purchase agreement filed with the SEC illustrates why you must read the actual formula rather than rely on the headline offer. The account definitions, measurement date, and treatment of cash and debt drive the result.
Keep three questions separate: What is the operating business worth? What assets and obligations does the buyer receive? How much money reaches the seller at closing? An earnings-based valuation addresses the first. Working capital primarily addresses the second and influences the third. Resolve that distinction in the treatment center letter of intent before the parties build different expectations around the same price.
Start with an account-by-account schedule tied to the general ledger. Write down whether each balance transfers, where it appears in the purchase-price calculation, and which measurement policy applies. An asset sale that leaves receivables with the seller needs different economics from a transaction in which the buyer receives them. The phrase “normal working capital” leaves too much unfinished. Give these four groups explicit treatment:
There is no reason to assume every current asset or liability belongs in this calculation. In the 2026 CHS–Freeman asset purchase agreement, working capital is specifically tied to conveyed assets, assumed liabilities, and a negotiated schedule. That transaction is an illustration of contract-specific definitions, not a treatment-center benchmark. Ask your accountant and counsel to turn the proposed definition into a sample calculation using your own books before agreeing to it.
The biggest disagreements can start with ordinary bookkeeping choices: a late payroll accrual, an insurance prepayment, or an aging report that does not reconcile to the ledger. Review the six decisions below while negotiating the methodology. For each, ask whether the proposed rule applies identically to the historical target and closing balance. A consistent method makes it easier to identify a genuine operating change rather than a change in calculation policy.
Build a monthly schedule across a representative period, then investigate the variation. Payroll dates, insurance renewals, holidays, payer payment cycles, and a new location can explain movements that a simple average hides. Compare the proposed target with the same season and operating footprint expected at closing. If recent growth makes older months less representative, show the effect explicitly. Neither a convenient month-end nor a fixed percentage of revenue proves the right peg for your business.
Ask for a bridge from gross accounts receivable to the amount included in working capital. It should identify contractual adjustments and collection estimates without applying the same reduction twice. As a healthcare accounting illustration, Ardent Health’s revenue-recognition disclosure distinguishes standard charges from expected collections. For your treatment center, test the proposed balance against payer-specific payment history, aging, denials, and cash subsequently received. A submitted claim alone does not establish its collectible amount.
Suppose employees worked before closing but their next paycheck falls afterward. Ask how that accrued obligation enters the calculation and who pays it. Apply the same question to contractor invoices, benefits, and supplies received but not yet invoiced. A closing date immediately before payday can produce a different accrual from the date immediately after. The target methodology should address this timing rather than leave either side to discover its effect during the final settlement.
Investigate patient credit balances and potential payer overpayments instead of treating every receipt as unrestricted value. CMS’s Medicare overpayment guidance describes repayment and collection processes for applicable Medicare funds. Have compliance counsel determine the obligations in your circumstances. Separately, the deal documents should specify where the related balance belongs economically. Moving an item between seller and buyer schedules does not settle the underlying reporting or repayment question.
If the seller retains preclosing receivables, agree on collection responsibilities, remittance timing, access to supporting records, and the handling of misdirected payments. If the buyer acquires them, define which service dates and entities are included. Specify how receipts covering several invoices will be allocated. A payer deposit that arrives after closing may include both preclosing and postclosing services. The collection protocol should make that split traceable without relying on memory or informal cooperation.
Reconcile working capital against debt-like items, transaction expenses, escrow, and indemnity provisions. For example, ask whether accrued seller transaction fees have been excluded from operating working capital because they are already deducted elsewhere. Do the same for a disputed liability addressed by a separate protection. Different provisions can cover different risks, but your advisers should identify and address any duplicate recovery or overlapping price reduction rather than assume the labels prevent it.
Assume a hypothetical agreement sets a $600,000 peg. Closing net collectible receivables are $800,000; included prepaids and supplies total $100,000; included operating liabilities total $250,000. Working capital is $650,000: $800,000 plus $100,000 minus $250,000. Under a dollar-for-dollar target adjustment, that creates a $50,000 upward adjustment. If the closing estimate had been $680,000, the seller initially received an $80,000 increase. Finalizing at $650,000 then requires a $30,000 payment back to the buyer. These invented figures demonstrate arithmetic only; they are not recommended amounts or market norms.
Request a seller-proceeds schedule that starts with the agreed price and shows every separate adjustment. In a second hypothetical example, an $8,000,000 base price plus a $50,000 working capital surplus, less $1,200,000 of debt repayment, $200,000 of transaction expenses, and a $400,000 escrow leaves $6,250,000 delivered at closing, before seller taxes. The escrow remains separate from spendable closing cash. Your actual agreement may include cash, retained assets, earnouts, or other items. Reconcile the schedule to the legal documents so one item does not enter twice.
The operating-property perimeter also matters. A security deposit or prepaid rent may follow a lease or a separate property arrangement. Coordinate those accounts with the decisions described in selling a rehab business and its real estate. Keep the property price itself outside an operating working capital schedule unless the actual agreement expressly provides otherwise.
Prepare a compact working capital file your controller can maintain through closing and the review period. The objective is a reproducible calculation, with enough supporting detail to explain each material balance:
Keep detailed clinical or patient-identifying records out of general-purpose financial working files. Ask privacy counsel to approve any necessary disclosure process. For the wider payer review, use the separate addiction treatment reimbursement due-diligence guide; this schedule is focused on the closing calculation.
The final statement needs a delivery date, supporting schedules, a seller review window, and a payment deadline. Ask what happens if records arrive late or a requested reconciliation is missing. Preserve access to the books needed to test the calculation after you leave the business. The CHS–Freeman agreement cited above illustrates a negotiated independent-accountant process for disputed entries. Your counsel should distinguish accounting questions from claims that someone breached the agreement; those may need different resolution procedures. Specify who chooses the reviewer, which issues the reviewer can decide, and how costs are allocated.
Run the draft calculation on several actual historical month-ends and one projected closing date. Ask your advisers to explain the largest swings in plain English. Then test the effect of a slower payer payment cycle, a payroll cutoff change, and a disputed receivable. If either party cannot reproduce the result, fix the definition and supporting schedule before signing. This rehearsal can reveal disagreements while the parties still have time to resolve them constructively.
An earnout introduces a different calculation after closing. Check that acquired receivable collections cannot accidentally inflate, or be unfairly removed from, the earnout measure. For broader buyer context, see private equity in addiction treatment. Resolve both mechanisms in the letter of intent and definitive documents so the closing adjustment and future payment terms fit together.
Tony Siebel is the Founder and Managing Director of Olympic M&A. His background includes corporate development and physician-practice acquisitions at MDVIP, as well as serving as Vice President and Associate Partner at Stoneridge Partners, including work in its Behavioral Health Division.
Olympic M&A advises founders and healthcare business owners on transactions with private equity groups and strategic acquirers. Learn more about the firm’s behavioral health advisory services and discuss the scope of support appropriate for your business.
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