A locked-box mechanism fixes the price against the business’s balance sheet on a date before completion, so there is no working-capital true-up to argue about after the money changes hands.
Technically, it is a pricing structure in which the purchase price is set by reference to a locked-box date balance sheet, with the seller restricted from leakage, meaning extracting value through dividends, related-party payments, or unusual transactions, between that date and completion.
Sellers generally favour a locked box because it delivers price certainty and a genuinely clean exit: once the price is agreed, it does not move. Buyers can be wary of it because they are effectively pricing the business on historical figures and trusting the no-leakage protections to hold for the gap period.
The no-leakage covenant is what makes the whole mechanism work, and it is where the real negotiation happens. A narrow leakage definition leaves gaps a determined seller could exploit before completion. A broad one can inadvertently capture ordinary payments, like a director’s normal salary, that were never meant to be leakage at all.
What you as a seller should push back on: a leakage definition broad enough to capture ordinary-course payments you would have made regardless of the sale. Insist on a schedule of permitted leakage that expressly carves out salaries, agreed fees, and other routine payments between the locked-box date and completion.