The buyer's draft Letter of Intent states the transaction will be on a cash-free, debt-free basis, but we have significant cash reserves in our operating accounts. How do we handle our cash balance and transition our banking relationships without disrupting close?

Question

Tyler Smith · Accepted Answer

A cash-free, debt-free transaction means you keep all the cash in the business and pay off all the debt before the transaction closes. However, managing the physical mechanics of this transition can easily create friction if not planned correctly. First, understand that you cannot simply empty your operating accounts to zero on the day of close. Your business needs a baseline level of cash to continue processing daily transactions, payroll, and vendor payments. This baseline cash is handled through your net working capital calculation. Any cash above this target working capital peg is considered excess cash, which you are legally entitled to sweep out of the company before the closing bell. Second, coordinate with your corporate bank to establish a clear timeline for sweeping these excess funds. This process should be run as a coordinated Rock for your finance team during the closing week. Third, ensure the buyer's wire transfers are scheduled to land in your personal or holding company accounts simultaneously with the transfer of business ownership. Do not rely on post-closing reconciliations to get your excess cash back, as buyers can drag their feet for months. Clear, upfront communication regarding the banking transitions prevents cash flow blockages and ensures you walk away with every dollar you earned.