We have accumulated significant cash reserves inside the operating entity that we plan to sweep out at close. How do we ensure this cash-out strategy does not trigger a buyer dispute over our historical balance sheet strength during due diligence?

Question

Tyler Smith · Accepted Answer

Accumulating excess cash in your operating account to prove your business is healthy can backfire during an exit. Buyers buy the business on a cash-free, debt-free basis, which means you keep the cash and pay off the debt at closing. However, a buyer will scrutinize your historical cash levels to establish a working capital peg. If you artificially inflate your cash balances on your exit runway by delaying payments to vendors or accelerating collections unsustainably, the buyer will argue that your working capital needs are higher than normal. They will demand that you leave more cash in the business at closing to fund daily operations, directly reducing your net proceeds. To avoid this, use your EOS Scorecard to monitor and normalize your cash conversion cycle over the twenty-four months leading to a sale. Keep your accounts receivable and accounts payable metrics within tight, consistent historical ranges. Do not play games with your cash balances. Presenting stable, predictable cash flows proves your business is an efficient machine that does not require excess capital to survive, protecting your proceeds.