In their draft Letter of Intent, the buyer requires standard working capital delivered at close but also demands that we leave thirty days of operating cash on the balance sheet for uninterrupted operations. How do we defeat this double dip on our cash?

Question

Tyler Smith · Accepted Answer

Demanding thirty days of operating cash in addition to a normalized working capital target is a classic buyer attempt to double dip on your balance sheet. In standard lower middle market transactions, deals are structured on a cash-free, debt-free basis. Working capital exists precisely to provide the operational liquidity required to fund short-term payables, payroll, and vendor commitments post-close.

When you deliver normalized Net Working Capital, you are already leaving sufficient current assets, including trade accounts receivable, inventory, and prepaids, to satisfy current liabilities like accounts payable and accrued payroll as they mature. Requiring raw cash on top of a properly calibrated working capital peg forces you to gift the buyer funded working capital twice.

To eliminate this clause, pull your historical trailing twelve-month balance sheets and show your cash conversion cycle. Demonstrate via your EOS Scorecard that your collections rhythm and accounts receivable turnover consistently fund operating expenses without reliance on static cash reserves.

If the buyer claims their working capital peg calculation omitted cash entirely, agree to include operating cash inside current assets for the working capital target calculation, but reject any separate, unadjusted cash holdback. Every dollar of cash remaining on the balance sheet at midnight prior to closing must either be paid to you as cash at close or generate a dollar-for-dollar positive working capital purchase price adjustment.