How much working capital does a care business buyer need?

Short answer

Start with the buyer’s payments and receipts, organized by date. Include payroll, rent, suppliers, taxes, debt payments and necessary transition spending without counting the same cost twice. Identify which collections actually belong to the buyer. The working-capital guide explains the detailed cash sequence and closing-account analysis.

The seller’s forecast is useful evidence, but its assumptions may describe a different business owner. A purchase that excludes old receivables can leave the buyer paying current bills while those collections go elsewhere. A new software contract or staffing arrangement can also change the cash needed immediately after closing.

Longer answer

First separate accounting working capital from spendable cash. The SEC’s financial statement guide describes a balance sheet at a particular date and cash flows across a period. A positive balance of current assets over current liabilities therefore does not, by itself, establish that payroll cash is available on Tuesday. (Source: SEC financial statements guide)

Use supporting records to test the forecast. IRS guidance explains that purchases, sales, payroll and other transactions generate documents behind the books. For this exercise, match appropriate summaries and records to the forecast’s amounts and dates. A total copied from an income statement does not prove the cash will arrive as expected. (Source: IRS recordkeeping)

Review receivables by payer and service period. The AR aging definition helps explain why the age of an invoice and the amount billed do not establish collection timing. Confirm the contract treatment of preclosing balances, refunds and any collection services the buyer will perform for the seller.

Next, distinguish recurring costs from money spent to complete the transition. SBA’s planning guidance separates one-time and recurring expenses when estimating capital needs. Apply that distinction to the buyer’s actual plans, without assuming every purchase creates the same transition costs. (Source: SBA expense planning)

What it depends on

The closing terms determine what starts in the buyer’s accounts. Read the working-capital peg definition alongside the purchase agreement. Excluded receivables, assumed bills and price adjustments need consistent treatment across the closing statement and forecast. An unexplained difference is a question to resolve, not an extra source of cash.

Timing can matter more than the monthly total. Mark the dates of large payroll runs, tax payments and expected collections. Test a documented delay or staffing cost increase rather than adding a percentage simply because it looks conservative. State the reason for the chosen minimum cash balance and how it would be funded.

Financing needs its own evidence. SBA lists working capital and ownership changes among possible 7(a) uses, while eligibility and the lender’s review still apply. This does not establish that an acquisition loan will include the buyer’s requested reserve or fund it by the needed date. (Source: SBA 7(a) program)

The lender underwriting guide helps organize that discussion. Keep a proposed loan, an undrawn line with conditions and cash already available in separate forecast entries. Avoid counting the full stated facility as immediately usable money without reviewing its terms.

Example

Assume a fictional buyer receives a forecast showing $100,000 of first-month collections and $120,000 of payments. The draft purchase terms leave $35,000 of those collections with the seller. The buyer also identifies $10,000 of necessary transition training and systems spending that was omitted from the first forecast.

Each row replaces the previous version; do not add the three outflows. The corrected version uses $45,000 more cash during the month than the starting version. That difference comes from $35,000 less buyer cash received and $10,000 more paid.

All amounts are invented. The example excludes the purchase price, financing proceeds and other unlisted costs. It assumes the remaining receipts are collected and the listed payments occur within the month. It does not establish that $65,000 is a sufficient opening reserve: payments may come first, and a chosen minimum cash balance would need separate funding.

What to do next

Give the advisers a marked forecast showing each change from the seller’s assumptions and the record supporting it. Identify unresolved receipt rights, missing payment dates and proposed funding. Use the financing options guide to compare appropriate sources after the cash need is defined.

Then reconcile the plan with proof of funds and the first 90 days handoff. Assign responsibility for updating actual receipts and payments. A funded forecast should remain useful after closing, when real cash movements reveal which assumptions need attention.