What is usually included on the balance sheet at sale

December 07, 2021

by a searcher in Chicago, IL, USA

HI all,

Thank you in advance for you help and comments. I am wondering what is usually left on the balance sheet at the close of a transaction? I am looking at a plumbing business and the broker is saying that AP, AR, debt and cash are not included in the sale.
Is this usually the case?

I ask, because for an SBA loan I thought that they use the items on the balance sheet to lend against? Perhaps they lend against the net cash that the business produces on average and not the balance sheet?

Thank you for you help.

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Reply by an intermediary
from University of Washington in Bellevue, WA, USA

Today- most transactions are cash free debt free...but for both a) both smaller companies, and b) how they used to structure deals years back, it was more common to for the seller to keep the cash, AR, AP, and then have inventory paid for in addition to the sale price. So that may be where the different view point is coming from. NWC is most often an 'arm wrestle' between both sides if not clarified upfront-- and can definitely be one of the longer conversations you have in negotiations. Just a suggestion...if you haven't yet, start this conversation now--I will even pull out a balance sheet and draw up what the closing bal. sheet will look like so it's clear and can be replicated at Closing. If you want to talk about ways to approach the conversation or have my Closing Bal. Sheet Template -I'm happy to help/share -- good luck!

Reply by a professional
from Villanova University in New York, NY, USA

I specialize in financial due diligence (aka Q of E), and I can confirm that 99/100 times items like AR and AP are included in the purchase price/valuation and transferred to the Buyer at close. This type of thing should be discussed and agreed on in your LOI so as not to kill a deal down the line. I've seen deals killed because of this exact reason. Let me know if you have any questions: redacted

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