Working Capital in an Arizona Business Sale
Eddy Roche, Associate Broker · AZ license BR579487000 · HUB AZ / Sunbelt Arizona
Price is not the only number. Buyers care what cash, inventory, and receivables stay in the business at closing. Here's how I explain working capital so sellers are not surprised in diligence.
What working capital means on Main Street
On a Main Street sale, working capital is the cash, inventory, and receivables that keep the shop open next Tuesday. Payables sit on the other side. It is not a private-equity peg I can recite as law. How much of that package stays in the business at closing is a negotiated term.
Buyers want a normalized operating balance sheet. Sellers often assume the asking price is the only number. Those two views collide in diligence if we do not write the definition early.
Structure changes what transfers. See asset sale versus stock sale in Arizona. I walk the line items on the file, not from a template.
Cash-free / debt-free language
Cash-free, debt-free is a common framework. The seller keeps excess cash and pays off operating debt. The buyer steps into a shop that can run without a surprise check the first week. Exact definitions belong in the term sheet.
Excess cash is not the same as the till you need on Monday. Operating debt is not always the same as a seller note. I will not treat those phrases as a universal formula. I will write what they mean on your file.
Inventory and AR
Inventory is the fight I see most. Sometimes it is inside the enterprise price. Sometimes it is a separate true-up at closing. The LOI should say which. Count it. Age it. A cooler full of dated product is not the same as a current stock list.
Receivables have the same problem. Current AR that customers actually pay is different from invoices that have sat. If the buyer is taking AR, we say so. If you are keeping it, we say that too.
Distributors feel this most, because they carry both heavy stock and customer terms. That file is on selling a distribution business in Arizona.
Prep the aging reports before anyone asks. How that review runs is on how diligence works for Arizona sellers.
Why it shows up in the LOI
Under-funded working capital means the buyer writes a bigger check the week after closing. That is why they fight. Clear definitions reduce that fight. I put the treatment in the letter of intent so diligence is a check, not a rewrite.
What belongs in that letter is on what an LOI covers in an Arizona business sale. The purchase agreement can refine the math. It should not invent the rule after you already shook hands.
The worksheet that starts that conversation is Value My Business. How I run the rest of a listing is on Sell My Business.
Related reading: asset sale versus stock sale in Arizona, how diligence works for Arizona sellers, what an LOI covers in an Arizona business sale, inventory in an Arizona business sale, and closing and escrow in an Arizona business sale.
Start with a valuation
Send the basics. I look at how cash, inventory, and receivables sit on your books and tell you how I would set the term. No universal formula. No obligation to list.
Frequently Asked Questions
What is working capital in a business sale?
The short-term operating assets and liabilities that keep the business running — often inventory, receivables, payables, and cash. How much stays at closing is negotiated.
What does cash-free, debt-free mean?
A common framework where the seller keeps excess cash and pays off operating debt, and the buyer gets a normalized operating balance sheet. Exact definitions belong in the term sheet.
Does inventory count toward the price?
Sometimes inventory is inside the enterprise price. Sometimes it is a separate true-up at closing. The LOI should say which.
Why do buyers fight about working capital?
Because under-funded working capital means they write a bigger check the week after closing. Clear definitions reduce that fight.
When is working capital negotiated?
Often at LOI, then refined in the purchase agreement and diligence. Prep your AR/AP and inventory early.
How do I start?
Valuation and a deal-structure conversation at bizsalesguy.com/value-my-business or (480) 405-3200. Eddy Roche, Associate Broker BR579487000.
Talk through working capital on your file
No obligation. I look at the books and call you. Across Arizona.
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