Our business has a line of credit and several equipment leases. How will a buyer view this debt structure during our exit runway, and what should we do to optimize our credit profile before going to market?

Question

Tyler Smith · Accepted Answer

Buyers analyze your capital and credit structure through a very specific lens during due diligence. In most transactions, the seller is expected to deliver the business cash-free and debt-free. This means all senior debt, lines of credit, and equipment loans must be paid off at closing from your transaction proceeds. However, your historical management of credit and debt remains a major indicator of your operational stability and financial discipline. Under the Step by Step Exit Integrated Readiness framework, you must conduct a thorough credit and benchmarking review at least twenty-four months before your target exit date. If your business is heavily reliant on a line of credit to manage seasonal working capital fluctuations, a buyer will view this as a working capital risk. You must use your exit runway to optimize your cash conversion cycle. Use your EOS® Scorecard to track and improve your Days Sales Outstanding and inventory turnover. By reducing your reliance on short-term debt and demonstrating a healthy, self-funding working capital cycle, you prove to a buyer that the business possesses exceptional cash-generation capability. Additionally, clean up any personal guarantees on leases or vendor accounts. Optimizing your credit profile and proving you do not need external debt to fund daily operations removes major hurdles during due diligence and maximizes your cash at closing.