Sep 2

2026

Locked box or completion accounts: choosing the right price mechanism for an SME sale

Locked box and completion accounts are two common mechanisms for determining the equity price in a private company sale. The choice affects price certainty, risk allocation and how much financial work continues after completion.

Under a locked box, the price is agreed using historical financial information at a specified locked box date. Under completion accounts, the price is adjusted after completion using the company’s actual cash, debt and, commonly, working capital at completion. Neither approach is automatically better.

The core difference in one table

The precise outcome always depends on the sale and purchase agreement rather than the name given to the mechanism.

How locked box actually works

The parties agree an equity price using historical accounts or a balance sheet prepared as at the locked box date. From that date, the economic benefit and risk of the business generally passes to the buyer, even though legal ownership transfers later.

The seller normally undertakes that no value will leave the target between the locked box date and completion except for specifically agreed permitted leakage. Payments such as dividends, transaction costs and payments to shareholders or connected parties may therefore need to be expressly addressed.

The buyer is usually protected by contractual leakage provisions, commonly providing pound-for-pound recovery of prohibited value transfers. Lewis Silkin’s guide to locked box pricing explains the mechanism and typical buyer protections in detail.

Why sellers may prefer a locked box

Where the company’s accounts are reliable and its financial position is relatively stable, a locked box can provide greater certainty over the consideration and reduce the risk of a lengthy post-completion adjustment process.

That certainty depends heavily on the quality of the financial information. Reliable monthly management accounts help buyers understand trading performance and balance-sheet movements before signing.

It is also one reason preparing a business for sale properly well before going to market can materially improve deal readiness.

Why buyers may prefer completion accounts

Completion accounts can be more appropriate where cash, debt, stock or working capital may change significantly before completion. The final consideration can then be adjusted by reference to the financial position actually delivered.

The mechanism requires detailed definitions of cash, debt, debt-like items, working capital and accounting policies. It also needs clear preparation and dispute-resolution procedures.

Where thorough due diligence identifies uncertainty over the target’s financial position, completion accounts may give a buyer greater protection than relying entirely on historical figures.

The disadvantage is that price discussions can continue after legal completion. Disagreements can arise over provisions, accruals, working-capital calculations and whether particular items should be treated as debt or ordinary operating liabilities.

Where this connects to valuation

The pricing mechanism comes after the underlying business valuation. The considerations covered in how a private company is valued when a shareholder wants to exit remain relevant, including maintainable earnings, debt, cash, working capital and unusual owner-related costs.

With a locked box, inaccurate historical accounts may affect the fixed price. With completion accounts, unclear definitions can instead produce a post-completion dispute.

SCC’s SME business advisory team can help sellers prepare financial information and assess how different deal structures affect the numbers.

What to decide before you instruct lawyers

Before agreeing heads of terms, consider:

• whether your management accounts and balance-sheet reconciliations are reliable;
• how long is expected between signing and completion;
• whether working capital is stable or highly seasonal;
• which payments should qualify as permitted leakage;
• how cash, debt and debt-like items will be defined; and
• whether the buyer or its financing arrangements require a particular mechanism.

Where shareholders disagree over pre-sale distributions or the underlying financial position, the issues may overlap with forensic accounting in shareholder and partnership disputes. SCC’s forensic accounting and expert witness team can also assist with transaction disputes, completion accounts, valuation and expert determination work.

Where the business trades across the UK and Ireland, SCC’s cross-border accounting and tax specialists can consider the tax consequences in both jurisdictions.

If you are heading towards a sale and have not yet decided how the price will be fixed, talk to SCC Chartered Accountants before your lawyers draft the heads of terms. Getting this decision right early avoids a much more expensive argument later.