The offer is 120 million. What is the actual net amount you will receive in your account?

What the Number in the Offer Really Means

The difference between the two numbers is a simple calculation, but in practice, it often comes as a surprise. If a company has a bank loan of CZK 30 million and CZK 10 million in its account, CZK 30 million of debt is subtracted from the offered CZK 120 million and CZK 10 million of cash is added, leaving CZK 100 million to be distributed among the owners. If, according to the agreed definition, debt also includes unpaid dividends, leases, or shareholder loans that are paid off upon sale, the amount decreases further.

The next step is usually a working capital adjustment, i.e., the difference between the current assets and short-term liabilities of the company as of the date the transaction actually transfers. The buyer calculated the price based on historical figures and the agreed target working capital; if the actual state is lower, the price is reduced by the difference, if it is higher, the seller receives extra. How big of a difference this makes depends on the seasonality and liability structure of the specific company – which is why the Czech legal team at ARROWS advokátní kancelář maps it out with the seller's financial advisor before the seller responds to the offer.

For the seller, this implies one practical rule. The number in the LOI is an entry point into negotiations, not a promise of a bank transfer. Only the breakdown of debt, cash, and target working capital will show how much the transaction will actually yield – and this breakdown belongs in the price negotiations just as much as the enterprise value itself. What the letter of intent itself should contain and when it becomes binding before the purchase agreement is signed is discussed in the text on the term sheet and its binding nature.

Part of the transition between the enterprise value and the resulting payout is also the question of what can be extracted from the company between signing and closing. If the seller pays out an extraordinary dividend just before closing without the contract addressing it, the buyer may argue that this reduced the value they actually paid for. How this dispute is resolved and how to address it with a locked-box or leakage clause between signing and closing is described in the text on pre-closing dividends and working capital adjustments.

Five Elements That Determine the Final Price and Timing of Payment

The path from enterprise value to the amount in the bank account goes through five elements that, in a well-prepared M&A transaction, appear in the term sheet before the purchase agreement is drafted. Two of them change the price amount, the third determines the mechanism by which the price is set, and the remaining two decide mainly when and under what conditions the money actually reaches the seller. These are therefore not items of the same kind that are simply subtracted from the offer.

Net debt is the first and most significant adjustment: interest-bearing debt is subtracted from the enterprise value, and cash held by the company as of the reference date is added. What is considered debt is subject to negotiation and depends on the definition in the contract. Depending on the specific transaction, the parties often include items that do not look like debt at first glance – such as lease liabilities, certain unpaid management bonuses, tax underpayments discovered during due diligence, or shareholder loans.

The second element is the working capital adjustment, and this is often the source of most disputes. The buyer and seller usually have different interests in how high to set the target value. A common starting point is an analysis of historical working capital adjusted for extraordinary effects, for example over the last twelve months; for a seasonal business, it is also necessary to choose a period and date that does not distort seasonality. The sooner the parties agree on the methodology, the less room there will be for dispute after closing.

The third element is the choice of the mechanism by which the price is determined, and thus also the moment from which the buyer bears the risk of the company's development. In a locked-box mechanism, the price is agreed upon at signing based on accounting data as of a reference date, which usually precedes signing, and the company's results from this date go to the detriment and benefit of the buyer. In a closing accounts mechanism, the final price is determined only according to the financial statements as of the closing date, which gives a more precise number but opens up room for dispute over its compilation.

The fourth element is an escrow or holdback of part of the price, which serves the buyer as security for claims arising from breaches of representations and warranties; it does not change the total price, but it changes the moment the seller receives it. The amount and duration of the escrow vary significantly depending on the size of the transaction, the bargaining power of the parties, the results of due diligence, and whether representation and warranty insurance (W&I insurance) is arranged. The fifth element is a part of the price tied to the future results of the company (earn-out), which the seller receives only if the business meets the agreed financial targets after the sale.

The individual elements are calculated sequentially and in a fixed order, not randomly. First, net debt is subtracted from the enterprise value; in the case of closing accounts, the result is adjusted by the difference between actual and target working capital, and only then is the escrow and any earn-out component separated from this calculated amount. If the order or the base from which the individual adjustments are calculated changes, the resulting amount also changes without changing a single number in the offer itself – which is why the term sheet should explicitly describe this order, rather than leaving it to agreement when drafting the purchase agreement.

When the Price is Calculated at Signing and When After Closing

The choice between a locked box and closing accounts determines who pays for surprises between signing and closing. With a locked box, the buyer bears the economic risk and benefits of the company from that reference date, and the price is generally not recalculated after signing. In exchange, the buyer stipulates a prohibition on leakage – dividends, extraordinary bonuses, and other payments in favor of the seller between the reference date and closing – so that the value they are paying for does not prematurely leave the company.

With closing accounts, the seller bears the risk slightly longer, as the final price is determined only from the financial statements prepared after closing. According to the contract, these are prepared either by the buyer, who has access to the data after closing, or by the target company itself. If the parties do not agree on the statements, the contract should designate an independent accountant or financial expert, describe their role in deciding the dispute, and set a deadline by which each party must raise its objections.

Both mechanisms are equally valid legally: the purchase price is agreed with sufficient certainty if at least the method of its determination is agreed (Section 2080 of the Czech Civil Code). The contract therefore does not need to state a final number, but it must precisely describe the formula, data, and procedure by which the number is reached – without this, there is a risk of dispute over whether the price was validly agreed at all.

The formulation of the expert's role matters more than it seems. The Czech Supreme Court concluded this year that if, according to the agreement of the parties, the purchase price is to be determined by a third party, such determination is a condition for the effectiveness of the contract, unless the parties agree otherwise (judgment Case No. 33 Cdo 234/2026). If the contract entrusts the decision on the final price to an expert, it should therefore explicitly state how their determination affects the effectiveness of the transfer and what happens if the expert does not decide within a reasonable period.

Which mechanism to choose depends on how much the parties trust each other regarding the quality of the accounting and how quickly they need to close the transaction – which is why the Czech legal team at ARROWS advokátní kancelář makes this choice together with the seller's financial advisor before the term sheet is signed, not during the drafting of the purchase agreement.

What the Buyer Stipulates and What is a Warning Sign

Transactions that proceed without a price dispute share three common characteristics. The term sheet contains a specific definition of net debt and working capital, not just a reference to "standard accounting practices." The deadlines for preparing and reviewing the final calculation are in the range of weeks, not months. And the dispute resolution mechanism is a named independent accounting expert with a fixed deadline, not a general "the parties shall agree."

The first warning sign is a term sheet that defines the price only as a number without a breakdown of adjustments. When a buyer refuses to include the definition of debt and working capital in the term sheet, arguing that "this will be finalized in the purchase agreement," they are giving themselves room to set the definitions in their favor at a time when the seller has less bargaining leverage.

The second sign is an escrow whose amount or duration does not correspond to the risk profile of the transaction. The escrow can cover general claims for breach of representations and warranties as well as specific risks identified during due diligence; however, if the buyer cannot explain why they require this specific amount and duration, it serves more as their general reserve. The third sign is a part of the price tied to future results (earn-out) that the buyer unilaterally influences after closing – changing business strategy, shifting customers or costs between group companies so that the targets become impossible to meet.

A broader overview of how a transaction typically proceeds from first contact to settlement, and where pricing mechanisms fit into the process, is summarized in the text on business acquisition and sale. A seller who knows the entire process map in advance is better able to recognize at which stage the pricing mechanism can still be negotiated and when the position is already firmly set.

What Limits Freedom in Setting the Price

By a purchase agreement, the seller undertakes to hand over the subject of purchase and the buyer to take it over and pay for it; unless otherwise implied by the contract or custom, both parties are obliged to perform their obligations simultaneously under Czech legislation (Section 2079 of the Czech Civil Code). In transactions with deferred payment or price adjustment after closing, the contract must therefore explicitly agree on a deviation from this simultaneous performance, otherwise interpretative uncertainty arises as to when exactly the buyer is to pay.

Freedom in negotiating the pricing mechanism has two other limits that companies encounter in practice. The first is the requirement of price certainty under Section 2080 of the Czech Civil Code: a contract that merely refers to a future agreement of the parties without a described calculation procedure does not meet the legal standard and risks challenging the validity of the purchase agreement as a whole.

The second limit is the restriction on what can be validly excluded in a contract. No regard is given to an agreement that excludes or limits in advance the obligation to compensate for harm caused intentionally or through gross negligence, nor to an agreement that excludes or limits in advance the right of the weaker party to compensation for any harm (Section 2898 of the Czech Civil Code). The liability cap agreed for representations and warranties therefore cannot limit compensation for harm caused by the seller intentionally or through gross negligence – typically by knowingly misrepresenting the accounts – regardless of how low it is set in the contract.

The Czech Civil Code does not regulate locked box, closing accounts, or earn-outs in detail. These are not special contract types: they are provisions on the purchase price within a share purchase agreement or a business purchase agreement, to which general rules on purchase apply. From this, it follows that the entire mechanism stands and falls with how precisely it is described in the contract – the law will not reliably fill in the gaps in the formula for the parties, and any gap will be reflected directly in the resulting amount in any potential dispute.

How exactly to set the ratio between escrow, closing accounts, and the liability limit for a specific transaction depends on the results of due diligence and how much risk the buyer is willing to bear themselves – which is why the Czech legal team at ARROWS advokátní kancelář proposes this only after evaluating the due diligence, not based on a universal template.

How to Watch Over the Pricing Mechanism During Negotiations

The first step is to insist that the term sheet contains a definition of net debt, target working capital, and the calculation mechanism, not just the resulting amount. A term sheet containing these definitions gives the seller a comparable bargaining position at a time when they still have leverage – i.e., before signing exclusivity with a single interested party and losing the opportunity to approach another buyer.

The second step is to require the seller's financial advisor to review the proposed formula before the purchase agreement is signed and verify whether it corresponds to the figures on which the offer itself was based. A discrepancy between how the enterprise value was determined and how the calculation mechanism is set up is the most common cause of later disputes over the final price, as both parties then argue using different starting figures.

The third step is to negotiate the deadlines and procedure for resolving disputes over the final calculation in advance, not when the dispute arises. The contract should name an independent expert, give them a fixed deadline, and also account for the possibility that they will not decide – in such a case, the law allows the court to determine the matter upon the proposal of either party (Section 1749 of the Czech Civil Code). The contract can also specify that the expert's costs will be borne by the party whose calculation deviates further from the final result, which keeps both parties focused on realistic proposals.

The fourth step is to clarify the relationship between the escrow and the liability limit from representations and warranties. If so agreed in the contract, the escrow may represent the primary source of satisfaction of a claim, while the liability limit determines the maximum scope of the seller's liability; however, the escrow can also be the exclusive source of compensation or just one of several securities. The contract must therefore clearly state how both arrangements link to each other, otherwise a dispute will arise as to how much the buyer is allowed to take from the escrow and what happens if the claim exceeds its amount.

The fifth step, which is often underestimated, is to review the tax implications of individual payments before the mechanism is fixed in the contract. A dividend paid before closing and the purchase price for a share are not the same from a tax perspective; for the deferred and earn-out parts of the price, the result then depends on whether the seller is an individual or a legal entity, whether they meet the exemption conditions, and how the payment is legally structured. This determines how much of the total amount the seller actually keeps after tax.

Risks of the Pricing Mechanism in the Purchase Agreement

Final Summary

The number in the offer is an entry point for negotiations, not the amount the seller will see in their account. Between the two stand net debt, working capital adjustment, the choice between locked box and closing accounts, escrow, and any earn-out component – five elements that can be valued and negotiated before the purchase agreement is signed.

For the business owner, this implies one decision that belongs in the term sheet phase, not the signing phase. The more precisely the definitions of debt, working capital, and the calculation mechanism are described at the beginning, the less room remains for the buyer to shift the resulting amount in their direction later, when the seller no longer has comparable leverage.

The Czech legal team at ARROWS advokátní kancelář prepares and negotiates term sheets and purchase agreements, designs pricing mechanisms based on due diligence results, and represents both sellers and buyers in disputes over the final price calculation. The Prague-based firm also connects clients looking for an investor or buyer with those offering such opportunities. A deeper overview of the entire business sale process is offered in the book How to Sell a Business.

Write to us at consultation@arws.cz or review our business sales and transaction advisory practice.