Define the operating amount
Working capital funds the gap between paying for operations and collecting from customers. Inventory, receivables, payables, and deposits may enter a deal calculation, but the included accounts must be defined.
Use a monthly history that reflects seasonality and growth. A single balance sheet date may show an unusually favorable or unfavorable point in the cash cycle.
Separate cash and debt from the target
A cash free, debt free offer still needs a clear account definition. Ask which cash stays with the seller, which debts are paid off, and which operating balances pass to the buyer.
Avoid counting an item twice, such as paying separately for stock already included in an agreed target. Put the definitions alongside the headline offer.
Agree on measurement and adjustment
Decide which accounting methods apply and how aging, doubtful receivables, obsolete stock, and customer obligations are treated. Specify a review and dispute process for any adjustment after closing.
The letter of intent may be preliminary, but an undefined economic term can become harder to resolve after you stop talking to other buyers.
Have both advisors inspect the mechanics
Your accountant can test the formula against past months. Your attorney can address the agreement language and the closing process.
A buyer’s financing plan also needs enough operating cash after acquisition. A sale should leave a workable business rather than a dispute about who funds the first payroll.
Continue your sale preparation
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