Working Capital and Receivables in Senior Care Deals

Why is the purchase price only part of the funding requirement?

A buyer must fund the acquisition and keep the service running. Payroll, rent, insurance, food, supplies and software may be due before the first post-closing invoice is collected. A facility also needs enough liquidity for predictable repairs and resident obligations; an agency may need staffing and billing support before a new payer account is fully functioning.

Separate cash used to pay the seller from cash available to operate afterward. Then separate acquisition expenses from recurring expenses. A lender may finance certain permitted uses, but approval of a purchase-price loan does not prove every post-closing need is funded. SBA 7(a) materials identify working capital among possible uses; specific eligibility and underwriting remain lender decisions. (Source: SBA 7(a), retrieved 2026)

The practical question is not “How much cash does this industry usually need?” It is “On what dates must this particular business pay out cash, and when can this buyer lawfully bill and collect?” Build the funding plan from those dates and documented assumptions.

Which balances belong in the negotiation?

These are negotiation questions, not a prescribed accounting classification. The same label can cover different obligations in different systems. Review the underlying record instead of relying on a balance-sheet caption.

How is a working-capital peg established?

Start with monthly balance sheets and supporting schedules over a representative period. Identify normal collection cycles, payroll dates, annual expenses, seasonal service patterns and unusual balances. Decide which accounts belong in the calculation before calculating an average.

Consistency matters. If the historical peg includes an allowance for doubtful receivables, the closing calculation should not omit that allowance merely because it increases delivered working capital. If certain accrued costs are excluded, make the exclusion explicit and address how those costs will be settled.

Document a worked schedule with definitions, examples and a hierarchy of accounting principles. The parties should understand who prepares the closing estimate, when a later true-up occurs, how objections are raised and how unresolved disputes are handled. These are agreement terms to settle with counsel and accounting advisers.

How should receivables be analyzed by payer?

Prepare a schedule by payer category, service period, invoice date, submission status, aging and subsequent collection. Distinguish a claim waiting for routine payment from one denied for missing authorization, documentation or eligibility. A balance can be recent yet difficult to collect.

For private-pay home care, examine customer billing cycles, deposits, payment authorizations, refunds and disputed hours. For home health, hospice and skilled nursing, the analysis may need claims adjustments, payer correspondence and reimbursement expertise. For assisted living, connect resident statements to agreements, concessions and payment histories.

Use consistent definitions of revenue and collections. The IRS recordkeeping guidance supports retaining evidence of business income and expenses, but it is the transaction team that must reconcile the service, invoice and cash records for the proposed purchase. (Source: IRS recordkeeping, retrieved 2026)

What changes when the seller keeps the receivables?

The buyer may start paying operating expenses while collections from earlier services continue to belong to the seller. That arrangement can be commercially reasonable, but it needs a larger and more carefully timed opening cash plan than a model that assumes all collections belong to the buyer.

Define who performs billing and follow-up work, who pays for that work, where cash is deposited, how mixed remittances are identified and when money is forwarded. Set access rules for records used to resolve denials and corrections. Avoid an informal promise that the buyer will “help collect” indefinitely.

Consider a fictional non-medical agency where a customer pays one statement containing services from both sides of closing. The bookkeeper needs a documented allocation by service period. Without it, both parties can believe they own the same receipt, or neither may accept responsibility for a refund.

How can the buyer stress-test the cash gap?

Build a weekly cash forecast for the transition using actual payroll schedules, fixed expenses, expected collections and one-time payments. Run a base case and adverse cases involving delayed collections, replacement staffing or slower admissions. The scenario length should reflect the business's actual payment cycle rather than a universal template.

For a purely illustrative home care example, suppose opening unrestricted cash is $100,000, near-term collections are $30,000 and scheduled cash payments are $110,000. The forecast closing balance is $20,000 before any additional reserve. Those invented inputs explain the arithmetic; they are not an agency benchmark or a recommended reserve.

If collections are delayed, the same profitable operation can fall below its required cash cushion. Record the action available before that happens: additional committed funds, revised timing or a different transaction structure. An unapproved credit line should not be treated as cash already available.

Why do deposits and advance payments deserve their own schedule?

A deposit may belong economically to a resident until a contractual event occurs. An advance service payment creates a future delivery or refund obligation. The party holding the cash and the party responsible for the obligation must be identified at closing.

For senior housing, reconcile each category to resident agreements and any applicable rules about holding, transferring or refunding funds. For a continuing-care community, entrance-fee and refund provisions may be materially different from an ordinary assisted-living security deposit. Do not combine them into a generic liability percentage.

Ask whether the related cash is restricted and whether it is being included elsewhere in the purchase-price calculation. A buyer can otherwise pay for the cash while also accepting the full obligation without an intended offset. The solution is a clearly reconciled schedule and negotiated treatment.

Do payer liabilities disappear if receivables are excluded?

No such assumption should be made. The treatment of receivables in the purchase agreement and responsibility to a payer or regulator are distinct questions. Historical recoupments, refund obligations and provider-agreement conditions need their own legal and reimbursement review.

For Medicare-certified providers, section 489.18 addresses assignment of provider agreements subject to applicable terms and conditions. Commercial promises between buyer and seller do not by themselves determine what CMS can require. (Source: 42 CFR 489.18, 2026)

Keep identified recoupment issues, ordinary trade balances and contingent liabilities in distinct schedules. If the parties negotiate an escrow or indemnity, evaluate its coverage, duration, dispute mechanism and actual collectibility with counsel. A reserve is not proof that an underlying issue has been cured.

How should the closing adjustment connect to tax allocation?

The final consideration and asset values may affect an applicable Form 8594 allocation. If the price later changes, reporting may require an update under the IRS instructions. The accounting team should reconcile the closing statement, working-capital true-up and tax workpapers. (Source: IRS Form 8594 instructions, 2021 revision)

Do not assume that a receivable's book balance, negotiated purchase value and tax treatment are identical. Similarly, do not treat an operating cash reserve funded by the buyer as consideration paid to the seller merely because both appear in the lender's sources-and-uses schedule.

The useful deliverable is a bridge: total acquisition funding, seller consideration, assumed obligations, transaction expenses and cash left available for operation. Every material amount should appear in a defined place, with no missing or double-counted items.

Which information can be shared safely during this analysis?

Early financial analysis can use payer categories and coded customer records. A buyer normally does not need names or diagnoses to understand the broad cash cycle. More detailed access should have a defined purpose and be reviewed under applicable privacy rules.

Where HIPAA applies, consider the minimum necessary requirements and appropriate contractual arrangements. A spreadsheet remains sensitive even if it is called a financial schedule rather than a patient file. (Source: HHS minimum necessary guidance)

What should be settled before the final offer?

Agree on the intended receivables treatment, a working-capital framework, the open liability questions and a preliminary post-closing cash forecast. Update the forecast when the lender, licensing pathway or purchase agreement changes. A financing plan based on obsolete closing assumptions can become unreliable quickly.

Jason Taken can help organize the commercial discussion and identify the schedules the parties need. The CPA, healthcare attorney and lender should validate the accounting, legal and funding conclusions. The objective is a transaction that can support uninterrupted operations after the seller receives the purchase price.

Terms to use in your review

Read the working-capital peg and AR aging by payer together: the contract defines what moves, while the supporting records help establish the value of those balances.

Connect the operating evidence

A continuing-care acquisition also needs a schedule of refundable entrance fees and their actual timing and funding conditions. Use the CCRC diligence checklist to distinguish those obligations from ordinary receivables and unrestricted operating cash.