Definition. The partial financial period between the seller's most recent fiscal year-end and the closing date. Buyers require the seller to deliver a closing balance sheet and stub-period income statement, used to calculate the post-close NWC settlement and to confirm that nothing material has changed since the most recent audited or reviewed financials.
The stub period is mechanically important but often overlooked by sellers. The seller’s accounting team needs to be able to produce closing financials on the actual closing date, with the same accounting policies and reconciliations as the year-end financials. Sellers whose accounting team cannot do this typically experience delays at close, sometimes pushing the close date out by weeks.
Best practice is to model the stub-period close 60 to 90 days before the expected close date, identify any items that will need to be addressed (revenue recognition, accrued bonuses, working capital normalizations), and resolve them in advance.