Locked Box vs Completion Accounts: Which Protects Sellers Better?
When you sell your company, the headline price is only half the story. The mechanism used to set and adjust that price can leave you either sleeping soundly or bracing for months of wrangling after completion. In the UK mid-market, two approaches dominate share purchase agreements: the locked box and completion accounts. Each allocates economic risk differently between buyer and seller. Each can be drafted to protect you – or, if handled badly, to expose you.
This guide explains how both mechanisms work, where the real risks and traps lie, and how a seller can structure a deal to maximise certainty, minimise leakage, and get paid what the business is worth. It is written for UK owners of businesses typically valued in the £1m – £50m revenue range, where value-for-money advice and clean execution matter most.
What is a completion accounts mechanism?
Completion accounts set the price by reference to the company’s actual financial position at completion. The parties agree a cash-free, debt-free, normalised working capital basis and a target for working capital. On completion day, the buyer pays an estimated price. After completion, the buyer prepares completion accounts, usually one to three months later, showing actual cash, debt (and “debt-like” items), and actual working capital. The price is then adjusted up or down to reflect the difference between actuals and the agreed targets.
For example, if actual net debt at completion is higher than expected, the price is reduced pound-for-pound. If working capital is lower, the price also falls; if it is above, the price rises. An independent accountant is typically named in the contract to resolve any disputes.
The appeal of completion accounts is that you price the deal off the economic reality at the finish line. The drawback is that you do not truly know your final price until after completion, and the post-closing process can become adversarial, absorbing management time when you would rather be moving on.
What is a locked box mechanism?
A locked box fixes the price by reference to a set of agreed historical accounts at a pre-signing “locked box date”. From that date, the economic risk and reward pass to the buyer, but the price is fixed and does not adjust post-completion. Because the buyer is taking the benefit from the locked box date, the seller agrees that no value will leak out of the business between that date and completion (“no leakage”). Any cash or value that does leave the company other than “permitted leakage” (things both sides have expressly allowed, such as the seller’s salary at an agreed level) must be repaid by the seller on a pound-for-pound basis.
To reflect the fact that the buyer has the benefit of profits from the locked box date but does not own the company until completion, deals often include a “ticking fee” or interest-like uplift on the equity price running from the locked box date to completion. Sellers prize locked boxes because they provide price certainty and avoid months of post-completion argument. Buyers accept them where due diligence is strong, the business is stable, and the gap between the locked box date and completion will be well controlled.
How do the two mechanisms shift risk?
The mechanisms are, in essence, a trade in timing and trust.
With completion accounts, the buyer bears less risk of unexpected changes in cash, debt or working capital because the final price is trued up to actuals. The seller bears the risk of post-completion reduction in the price and of wider interpretive disputes over accounting policies, definitions of “debt-like” items and working capital methodology.
With a locked box, the seller enjoys price certainty on day one and a cleaner exit, at the cost of giving the buyer strong protections against “leakage” and agreeing to operate the business in the ordinary course until completion. The buyer bears the risk that performance between the locked box date and completion is not exactly as expected, which is why buyers demand high-quality diligence, robust information undertakings and tight leakage covenants.
Which mechanism typically protects sellers better?
From a seller’s perspective, a locked box usually provides superior protection on certainty and clean exit, provided it is drafted and run properly. There is no trailing price renegotiation, no prolonged debate over whether a deferred revenue balance is “debt-like”, and no need to park part of your consideration in escrow pending finalisation. Your final price is your final price.
That said, there are scenarios where completion accounts can be perfectly acceptable, or even advantageous, if you expect a favourable swing in working capital at completion, if the business has pronounced seasonality, or if a buyer will only transact on that basis. The key is not to treat either mechanism as dogma. Choose what fits the shape of your business, the deal dynamics, and the buyer profile, and then negotiate the drafting ruthlessly in your favour.
The seller’s view: five advantages of a locked box
Certainty drives behaviour. When owners know the price is fixed, they can plan, invest time in a smooth transition, and stop worrying about a looming post-completion fight. For a seller, a well-drafted locked box typically offers:
1) Price certainty and a cleaner exit. You avoid the “second negotiation” that completion accounts often become. There is no need for an escrow purely to secure the completion accounts adjustment, and management can get back to running the business rather than gathering evidence for debates about stock provisions.
2) Simpler documentation and faster timetables. You avoid schedules on accounting policies and measurement rules that run for dozens of pages. In an auction, a locked box can make your process cleaner and more competitive.
3) Protection against value erosion. The “no leakage” covenant, backed by a strict definition of leakage and a pound-for-pound indemnity, protects you against value seeping out of the company in the gap to completion. If value does leak, you are entitled to recover it.
4) Economic neutrality between locked box date and completion. A fair ticking fee or price accretion compensates you for the time value of money and the buyer enjoying the economic risk and reward during the gap.
5) Fewer post-closing disputes. While warranties and tax matters still need attention, the major flashpoints around net debt definitions and working capital methodologies fall away.
These benefits are maximised when the business is stable, the locked box date is relatively recent, and the gap to completion is controlled with information undertakings (for example, monthly management accounts and KPI packs) so the buyer can monitor performance with confidence.
When completion accounts can still suit a seller
Completion accounts are not inherently “anti-seller”. They can work for you if the seasonality and working capital profile of your business mean a well-timed completion will likely deliver a favourable swing. Traditional wholesale and distribution businesses, for example, can accumulate inventory ahead of a seasonal peak and then convert it to cash, pushing working capital above the target around the target completion window. If you can plan completion timing thoughtfully, the mechanism can be neutral or even slightly positive.
Completion accounts can also be useful where the business is undergoing a carve-out from a wider group, or where the balance sheet is in flux due to a restructuring. In those cases, trying to lock a price off historical accounts might be optimistic. The trade-off is that you accept a longer tail on the transaction and must negotiate the definitions exhaustively to avoid unpleasant surprises.
The drafting that truly protects sellers
The choice of mechanism matters, but the drafting matters more. Many seller-unfriendly outcomes result not from the mechanism per se but from loose definitions and vague accounting policies. If you choose completion accounts, protect yourself by pinning down the following in the SPA:
Clear, specific definitions. Spell out what counts as “cash”, “debt”, and “debt-like”. Do not rely on general accounting principles alone. Address items that commonly bite sellers: corporation tax liabilities for pre-completion periods, accrued but unpaid bonuses, dilapidations provisions, customer prepayments, deferred revenue, warranty provisions, FX hedging liabilities, and lease liabilities under IFRS 16. If something is meant to be excluded, say so plainly.
A robust working capital methodology. Define “normal” clearly. Use a long enough reference period to smooth seasonality; many deals use a trailing 12-month average. Include a schedule with sample calculations, and fix the accounting policies to be used. If your business is inherently seasonal, consider a collar so small variances around the target do not trigger adjustments.
A disciplined timetable and expert determination process. Agree step-by-step timelines for the buyer to deliver accounts, your window to respond, and the independent accountant’s powers. Make it genuinely independent, fast and final.
Escrow only where necessary. If an escrow is proposed solely for completion accounts adjustments, resist heavy amounts or long durations. Tie any escrow closely to the limited matters that truly warrant security.
If you choose a locked box, seller protection is achieved through tight leakage protections and sensible information undertakings:
An exhaustive definition of “leakage”. Leakage should include any transfer of value to the seller group or connected parties, such as dividends, management fees, related-party payments, advisory fees, grants of security, waiver of intercompany receivables and non-arm’s-length transactions. If there is permitted leakage (for example, the seller’s base salary at a specified level), list it expressly and keep it narrow.
Pound-for-pound indemnity for leakage. Make it a debt claim so recovery is straightforward and not subject to general warranty caps if you can achieve it.
Ordinary course covenants, not operational shackles. You should commit to run the business in the ordinary course and avoid material changes without consent, but the drafting should not prevent sensible day-to-day decisions. Agree a pragmatic materiality threshold, so you do not need approval for routine purchases.
A fair ticking fee. This can be expressed as a fixed daily amount, a percentage per annum, or a price step-up per calendar month. The rate should reflect the profitability and cash generation the buyer will enjoy between the locked box date and completion.
Information rights. Commit to provide monthly management accounts, KPI dashboards and cash reports during the gap period. This comforts the buyer without undermining the locked box.
Practical examples: how the choice plays out
A recurring-revenue software business. Revenues are contracted, churn is predictable and working capital is not volatile. A locked box is ideal. The buyer can underwrite the risk with diligence and management information; the seller enjoys certainty and speed.
A seasonal distributor. Inventory and receivables balloon before peak trading and unwind afterwards. Completion accounts may be preferable, or you choose a locked box with a very recent box date and a short gap to completion. If you pursue completion accounts, use a working capital collar to avoid arguments over trivial variances.
A corporate carve-out. The target has recently separated from a wider group, with transitional service arrangements and unsettled intra-group balances. Completion accounts provide a way to true up the balance sheet properly. Sellers should lock definitions tightly and consider a short, well-scoped escrow purely to cover the completion accounts delta.
A fast-growing, profitable owner-managed company. If the pipeline is strong and margins are improving, a locked box protects that value without letting a buyer “reprice” later. A meaningful ticking fee preserves fairness for a gap of several months.
Avoiding the classic pitfalls that erode seller value
Sellers tend to lose value in the grey zones. Ambiguity is where adjustments, disputes and leakage hide.
One frequent error is to under-specify accounting policies for completion accounts. If stock valuation or bad debt provisioning changes between the locked box date and completion, the effect can be material. Fix the policies to those in the reference accounts and append them. Make it clear that any change must be agreed, not imposed by the buyer.
Another trap is working capital target set too low. If you set a target below the true normal, you hand the buyer a built-in reduction on day one. Use a full trading cycle to calculate the target; if the last year was distorted by unusual events, adjust transparently rather than pretending it was normal.
Sellers sometimes overlook debt-like items that reduce the price unexpectedly, such as accrued holiday pay, finance leases, or tax instalments. Work with advisers to build a proper debt-like schedule, test it against recent deals in your sector, and decide what is and is not truly debt.
In locked boxes, the danger is leakage by omission. If the business pays a long-standing consultancy fee to a spouse’s company, either stop it, re-paper it on arm’s-length terms with buyer consent, or list it as permitted leakage. Do not rely on “everyone knows about that payment”. On day 60 post-completion, everyone forgets, and friendly buyers turn exacting.
What buyers prefer and how to respond
European buyers, especially private equity, are often comfortable with locked boxes when diligence is strong. Many US buyers are more accustomed to completion accounts and post-closing true-ups. Neither position is absolute. If a US trade buyer insists on completion accounts, keep an open mind but negotiate the methodology, definitions and collar with precision. If a private equity buyer pushes for a locked box with an overly long gap and minimal information undertakings, shorten the gap and strengthen reporting.
Your leverage comes from competitive tension and preparation. If you run a well-structured process, present clear, recent financials, and offer a choice of mechanisms with seller-friendly terms, credible buyers will usually engage on substance rather than default positions.
Tax, warranties and the wider deal picture
The price mechanism does not sit in isolation. A seller-friendly outcome also depends on tax structuring, warranty and indemnity allocation, and how earn-outs or vendor loans interact with the mechanism.
On completion accounts deals, ensure that pre-completion tax liabilities are either reflected as debt-like items or covered by a tax covenant that is genuinely ring-fenced. On locked boxes, be alert to corporation tax instalments falling between the locked box date and completion; decide explicitly whether they are leakage or an ordinary course item borne by the buyer.
Warranty and indemnity insurance (W&I) can be used alongside either mechanism. It does not replace a locked box or completion accounts but can smooth negotiation on warranty scope and caps. If an earn-out is contemplated, consider how working capital or deferred revenue recognition under completion accounts might skew earn-out metrics; define the accounting treatment clearly to avoid arguments a year later.
How Dexterity Partners structures price mechanisms to your advantage
At Dexterity Partners, we advise UK owners through all six stages of a sale, preparation, buyer identification, marketing, negotiation, due diligence and completion, bringing our sister law firm 3Volution into the process from the outset. That integrated approach allows us to align the financial model, tax advice and legal drafting so the price mechanism complements, rather than complicates, your deal.
In preparation, we examine your trading cycle, seasonality, cash conversion and balance sheet to test which mechanism will protect your value. If a locked box is right, we help you pick the most recent sensible box date, design leakage definitions that actually bite, and benchmark a fair ticking fee. If completion accounts make more sense, we build the working capital methodology, set the target from a robust data set, and codify accounting policies so there are no surprises. Throughout, we project-manage the timetable so the mechanism does not become a bottleneck.
Decision framework: choosing the right path quickly
If you need a simple way to decide, ask yourself five questions.
Is the business financially stable and predictable?
If yes, a locked box gives certainty without penalising you. If not, completion accounts may be safer for both sides.
How seasonal is working capital?
High seasonality favours completion accounts unless you can time completion to a known position and use collars.
How long will the gap be from signing to completion?
The longer the gap, the more strain on a locked box. Shorten the gap or price a ticking fee that reflects the period.
How strong is your management information?
If you can deliver clean monthly numbers and KPIs, buyers will accept a locked box more readily.
What does competitive tension look like?
In auctions, locked boxes are often preferred because they streamline bids. In bilateral negotiations with a US buyer, expect to discuss completion accounts seriously.
Your answer does not have to be binary. Some deals adopt a hybrid: a locked box with a narrow true-up for one or two specific items, or completion accounts with a wide collar so only material swings adjust the price. The right answer is the one that keeps value in your pocket and keeps the deal moving.
FAQs: straight answers sellers ask us
Does a locked box always mean no post-completion price changes?
Yes, that is the idea; the price is fixed by reference to the locked box date. There can still be adjustments for leakage if value has flowed to sellers or connected parties, and tax covenants or warranty claims remain in play. But there is no general cash/debt/working capital true-up.
Is a ticking fee mandatory in a locked box?
No, but it is common and fair. It compensates the seller for the time between the locked box date and completion. The exact rate depends on profitability, cash generation and the expected gap length.
Can I use completion accounts and still keep certainty?
You can improve certainty by agreeing collars so only differences above a threshold trigger adjustments, by fixing accounting policies to the historical accounts, and by limiting the scope of “debt-like” items to what is genuinely debt.
What if my business is improving fast before completion?
That often points towards a locked box, so the buyer does not benefit from a late true-up that captures your upside. If the buyer refuses, negotiate completion timing carefully and ensure earn-out metrics, if any, are not undermined by accounting choices.
Are locked boxes only for private equity deals?
No. PE sponsors popularised them in Europe, but many trade buyers accept them when diligence and MI are strong. The key is transparency and control of the gap period.
How recent should the locked box date be?
As recent as is sensible. The more time between the box date and completion, the more nervous buyers become. A short gap, strong information undertakings and a fair ticking fee keep everyone comfortable.
What if the buyer insists on a big escrow for completion accounts?
Challenge the amount and duration. If the escrow is meant only to secure the completion accounts delta, it should be modest and released promptly once the adjustment is agreed or determined.
How do IFRS 16 lease liabilities affect the price?
Under completion accounts, lease liabilities can be treated as debt-like if the parties agree. Under a locked box, the treatment is baked into the reference accounts. Either way, define it expressly to avoid debate.
Can I combine a locked box with an earn-out?
Yes, but define the accounting treatment and measurement period for the earn-out to prevent the earn-out becoming a back-door completion accounts process.
What protects me most: mechanism or advisers?
Both matter. The mechanism sets the playing field; drafting and execution win the game. An integrated team – corporate finance, legal and tax, closes the gaps where value leaks.
The bottom line
If your goals are price certainty, speed and a clean exit, a well-drafted locked box usually protects sellers better. It turns off the tap of post-completion adjustments and reduces the scope for disputes. If your business is volatile, seasonal or in the midst of structural change, completion accounts can still be sensible, provided you lock down definitions, methodology and thresholds with care.
Either way, you do not need to accept a buyer’s “standard” approach. The choice is strategic, and the drafting is surgical. Get both right, and you will keep more of the value you have built.
Ready to protect your price?
Dexterity Partners advises UK owners on sales typically in the £1m–£50m revenue range, with a sweet spot of £500k–£5m profitability. We manage the whole process, from preparation and buyer identification through marketing, negotiation, due diligence and completion, alongside our sister law firm 3Volution. That unified approach means your price mechanism, tax structuring and legal drafting all pull in the same direction: yours.
Start the conversation today. The right mechanism, drafted the right way, can be worth a meaningful slice of your sale price.
