The buyer wants a debt-free, cash-free transaction, but we have substantial client deposits in our bank account for uncompleted projects. How do we structure the deal so we do not hand over our cash reserves without a dollar-for-dollar purchase price adjustment?

Question

Tyler Smith · Accepted Answer

In a standard debt-free, cash-free deal, the seller keeps the cash and clears the debt at closing. However, client deposits are not your cash; they represent unearned revenue and a future delivery liability. If you walk away with that cash, you leave the buyer with the obligation to complete the work without the funds to pay for it. Conversely, if you hand over the cash without an adjustment, you underpay yourself for work already sold.

To solve this, you must handle customer deposits through the Net Working Capital peg. The unearned revenue must be classified as a working capital liability on your closing balance sheet.

This means the buyer receives the cash associated with those deposits at closing, but your working capital target is adjusted upward by the same amount. If your actual working capital at close, including that cash, exceeds the adjusted peg, you receive a dollar-for-dollar increase in the purchase price.

To defend this structure, use your weekly Level 10 Meetings to track your project backlog and the exact status of your unearned revenue. Show the buyer your capacity model and project timelines to prove that you have the resources to complete the work. By clearly defining these deposits as a working capital component, you ensure a clean transfer without losing your cash.