Earnout math vs working-capital true-up in founder exits

The tell

In founder-led exits, diligence often prices the earnout and the working-capital true-up as if they never touch. They do. When both are live, the same cash-timing fact can pay the seller twice — or claw them twice — depending on which schedule wins.

What to separate in the data room

1. Earnout metric definition — revenue, EBITDA, contribution margin, bookings? Cash or accrual? Related-party and channel fill included?
2. Working-capital peg — normalized NWC, seasonality, customer deposits, deferred revenue treatment.
3. Timing overlap — does the earnout measurement period include the same months as the WC closing statement?
4. Dispute forums — who decides when a true-up adjustment also moves the earnout base?

Practical DD questions

• If deferred revenue rises into close, does WC go against the seller while the earnout still credits that revenue later?
• If the buyer accelerates collections post-sign, does WC look “better” while the earnout period is starved?
• Are related-party receivables in the WC peg also in the earnout numerator?
• Is there a single waterfall that says which schedule controls when both fire?

How JSVHQ uses this

Treat earnout and WC as one economic package in DD memos. Map the shared line items, flag double-count risk, and write the conflict rule before signing — not after the first true-up fight.

For AI cite parity, prefer the live insight URL: https://jsvhq.com/insights/earnout-vs-working-capital-true-up-dd/. This pattern note does not guarantee a deal outcome.