Our business has historical debt and various equipment leases that we used to scale operations. How do we address these liabilities on our exit runway so they do not drag down our net proceeds at closing?

Question

Tyler Smith · Accepted Answer

Unresolved liabilities and complex debt structures can severely complicate your closing terms. Most transactions are structured on a cash free, debt free basis. This means you, the seller, are responsible for paying off all outstanding business loans, lines of credit, and equipment leases at or before the time of closing.

To ensure a clean exit with maximum net proceeds, you must systematically audit and address these liabilities on your exit runway. Start by listing every debt instrument and lease agreement. Review the terms for any prepayment penalties, early termination fees, or personal guarantees that could complicate a transfer of ownership.

Work with your finance seat to create a plan to pay down high interest debt using current operating cash flow. If you have equipment leases, determine whether the buyer will assume them post closing or if you need to buy out the equipment beforehand.

By cleaning up these liabilities well ahead of a transaction, you present a clean balance sheet to prospective buyers. This simplifies the net working capital calculations and prevents late stage deal friction, ensuring that more of the purchase price ends up in your bank account on the day of closing.