Our business has some historical debt and a revolving line of credit that we use to manage seasonal cash flow. How does our current credit and debt profile impact our valuation, and how should we clean up our balance sheet on the runway to maximize our cash at close?

Question

Tyler Smith · Accepted Answer

Your credit profile and debt structure have a major impact on how buyers view your company's risk profile and how much cash you actually walk away with at closing. Sophisticated buyers will thoroughly examine your balance sheet, your banking relationships, and your historical debt service to assess the financial health of the operation.

On your exit runway, you need to clean up your balance sheet by resolving outstanding liabilities and optimizing your cash management. If you rely heavily on a revolving line of credit to handle seasonal cash flow dips, it indicates to a buyer that your working capital cycle is inefficient. You should focus on improving your accounts receivable collection and inventory management to reduce your reliance on short-term debt.

We recommend reviewing your debt covenants and banking relationships as part of your exit planning. A clean balance sheet with minimal debt and a healthy, self-sustaining cash position proves to a buyer that the business is financially stable. This de-risks the transaction and ensures you do not face unexpected adjustments or holdbacks at the closing table, allowing you to maximize your net proceeds.