After signing the LOI, the buyer is trying to write a cash-free, debt-free definition into the purchase agreement that prevents us from sweeping our operating bank accounts before closing. How do we structure the cash definition to protect our cash balance?

Question

Tyler Smith · Accepted Answer

A cash-free, debt-free deal structure sounds simple in theory, but the definition of cash can quickly become a battleground as you move from letter of intent to closing. Buyers often try to lock up your cash by claiming that some portion of it is restricted cash or necessary operating cash that must stay in the business to fund daily operations.

To prevent this cash grab, you must define net working capital and cash with absolute precision in the definitive purchase agreement. Clearly state that cash means all cash and cash equivalents, including unrestricted operating bank accounts, and that you have the right to sweep all cash immediately prior to the closing minute. Any cash left in the business at closing must be added dollar for dollar to the final purchase price paid to you.

Use your historical balance sheet data to prove what constitutes excess cash versus normal operating cash. By showing a clear history of your cash conversion cycle, you can demonstrate that your net working capital target is already sufficient to run the business without requiring an extra cash cushion. Review these cash definitions during your leadership team meetings to ensure your operational heads understand how daily spending impacts your closing proceeds. Do not let the buyer confuse working capital assets with the actual cash you have earned and have the right to distribute.