Excess cash in company prior to close

by a searcher

2 months ago

I'm negotiating an LOI with a Wholesaling company and they have excess cash in the bank beyond the 3 months working capital required.

I'm wondering how this cash is treated in the transaction, specifically does it reduce the amount I pay to the seller at close? For example if I'm paying the seller $2m and there is $200k excess working capital, doss the seller take home the $200k and I give the seller $1.8m at close?

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intermediary from Boston College - Wallace E. Carroll School of Management

Every deal I've ever done was cash free/debt free. Owner keeps all the cash and pays off all outstanding debt. A normalized w/c amount is left in the business and is adjusted at close and/or post closing adjusment date.. Working capital in all the deals I've done have excluded cash. If the for convenience a buyer requests that cash be left in the business (usually because the can't get a w/c facility in place or a banking relationship in place or to cover the next payroll or scheduled payments in the next week) it is a dollar for dollar increase the purchase price.

1 month ago | like reply | 0 likes

intermediary from Southern Methodist University

Definition of excess would be the amount of cash above and beyond what buyer and seller agreed to. Cash fluctuates daily in a business and some owners keep more cash in the business that is actually needed so naturally they don’t want to leave that behind. This is all generally negotiated between LOI and closing. You agree to a set amount then if there’s more cash at closing, it goes to seller. If less. Then PP is lowered by that amount.

2 months ago | like reply | 0 likes

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