Build a Sources-and-Uses Schedule
Uses should include purchase consideration, assumed or refinanced obligations, fees, working capital, inventory adjustments, equipment needs, insurance, deposits, and reserves. Sources should show buyer cash, approved debt, seller financing, and any other committed transaction source.
Do not count hoped-for operating improvements as a source. Closing funds must be available before the improvements occur.
Separate Deal Cash From Personal Liquidity
A buyer who invests every available dollar enters the business with no room for a slow month or personal emergency. Underwriters may also expect post-closing liquidity.
Set a minimum personal reserve and a separate company reserve. Treat both as requirements in the acquisition criteria rather than leftovers after the price is negotiated.
Estimate Professional Costs Early
Legal, accounting, lender, valuation, insurance, licensing, technology, and environmental work can be material. Request ranges from advisors before signing an LOI and update the model as scope changes.
A failed deal also consumes cash. Buyers pursuing multiple targets should maintain a diligence budget rather than assuming every professional dollar reaches a closing.
Stress-Test the First Six Months
Model slower collections, customer loss, delayed seller transition, an urgent hire, and an equipment failure. The reserve should reflect the business's actual volatility and fixed-cost structure.
A deal that only works when every assumption is correct is undercapitalized, regardless of how attractive the asking price appears.
Buyer Checklist
- Create a detailed sources-and-uses schedule
- Price diligence and closing costs
- Calculate operating working capital
- Reserve for immediate capital expenditures
- Maintain separate personal liquidity
- Run a six-month downside case
- Confirm every funding source before closing
Frequently Asked Questions
Is the down payment the total cash needed?
No. Buyers should also budget for fees, working capital, transition expenses, deposits, capital expenditure, and reserves.
Should seller financing replace a cash reserve?
No. Seller financing may reduce cash paid at closing, but the company still needs liquidity to operate and absorb surprises.
How large should the reserve be?
It depends on seasonality, concentration, fixed costs, equipment, collections, and integration risk. Build it from a downside cash-flow model.
This guide is educational and does not replace transaction-specific legal, tax, accounting, lending, insurance, or valuation advice from qualified professionals.