Working Capital and Receivables in Senior Care Deals

Separate purchase funding from operating cash

Start with two schedules. One shows the money needed to buy the business and pay acquisition costs. The other shows receipts and payments after closing. Payroll, rent, food, supplies and software may be due before new service revenue is collected. A profitable operation can still need cash to bridge that timing.

A buyer adding a location should also test the people needed to carry the plan. The second-location capacity guide identifies role-specific support gaps over an eight-week window. Available cash can fund a response, but the buyer still needs suitable skills, confirmed time and the right authority.

SBA lists working capital among possible 7(a) loan uses. Eligibility, lender review and the approved funding terms still control an actual loan. A purchase-price loan does not prove that every operating need has been funded. Confirm permitted uses and when money becomes available with the lender. (Source: SBA 7(a) overview)

Keep borrowed funds that are available separate from a proposed credit line. Identify any remaining conditions before treating a source as committed. Update both schedules when deal structure, closing timing or payer setup changes. The financing overview puts those sources in the wider acquisition plan.

Define what belongs in the closing calculation

The parties should agree on the accounts before choosing a target amount. A balance-sheet caption may hide several types of obligation. Review the support and explain each inclusion or exclusion. Cash, debt, taxes and resident funds may have separate treatment under the agreement; do not assume a standard definition settles them.

The SNF seller guide examines money held for residents through a fictional account reconciliation. The bank balance and timing item match the ledger total. That match does not make the money available to buy or run the business. Keep custody, proper charges and purchase funding as separate review questions.

The working-capital peg is the agreed reference amount used for the price adjustment. Compare representative historical periods under the same definitions used at closing. Check seasonal patterns, unusual balances and changes in collection timing. The chosen period and rules should fit the business, not an assumed industry formula.

The closing-account reconciliation follows an estimate through two supported corrections. It shows why the final adjustment against price differs from the further amount needed to change a settlement that already used the estimate.

Work through a clearly defined peg example

This invented example assumes the agreement includes net receivables, usable prepaids, trade payables and accrued payroll. It excludes cash, debt and resident restricted funds and obligations, which are addressed separately. The contract sets a $120,000 peg and a dollar-for-dollar adjustment. These are fictional terms, not a prescribed accounting or legal treatment.

Net receivables are $200,000 − $20,000 = $180,000. Delivered working capital is $180,000 + $20,000 − $60,000 − $40,000 = $100,000. The adjustment is $100,000 − $120,000 = −$20,000, a price reduction under this example's clause. The allowance is already reflected in net receivables and is not deducted again.

This result says nothing by itself about available payroll cash. The value of a receivable and its collection date are different inputs. A lower price also does not automatically place the difference in an operating account. Reconcile the adjustment with the actual funding and closing statement before updating the cash forecast.

Review receivables by payer and service period

Use a schedule that shows service period, invoice date, submission status, age, credits and later receipts. Distinguish an unbilled service from an issued invoice. Record denied, disputed and partially paid balances separately. A recent claim with missing support may deserve more scrutiny than an older balance with a documented payment date.

Connect the schedule to the ledger and explain differences. IRS recordkeeping guidance describes supporting business records; it does not prescribe a sale peg or certify a spreadsheet. The accountant needs to trace the amounts back to their source and the chosen reporting basis. (Source: IRS recordkeeping guidance)

For private-pay home care, review service hours, payment terms, credits and disputed charges. Clinical providers may need reimbursement specialists to assess claims and payer adjustments. Residential businesses need to connect statements with resident agreements and concessions. The AR aging definition explains why one aging bucket cannot answer every collection question.

Use permitted aggregate or coded records for authorized financial review. Removing names alone may not de-identify a schedule. Where HIPAA minimum necessary applies, limit the information to the approved purpose. Review any deeper access before sharing identifiable billing detail. (Source: HHS minimum necessary guidance)

Set the rules when the seller keeps receivables

If old receivables remain with the seller, their later collection may not fund the buyer's new expenses. Mark those receipts outside the buyer's operating cash forecast unless a specific arrangement provides otherwise. Do not assume all deposits into a shared collection account belong to the operator now paying the bills.

Define who bills, follows up, corrects records and forwards money. Set the service-period boundary, allocation rules, reporting schedule and cost of this work. Address credits, refunds and disputed receipts too. Keep authorized access to supporting records available for the agreed duties, using the custody guide to frame that handoff.

Consider a fictional customer payment covering services from both sides of closing. The bookkeeper needs the agreed allocation and the underlying statement to divide it. The date cash arrived alone may not determine ownership. Put any unresolved allocation into a tracked review rather than letting both parties count the same receipt.

The buyer working-capital exercise starts with a fictional seller forecast. It removes receipts kept by the seller and adds missing transition costs. Use it to explain the revised monthly cash use before working out payment dates and an opening reserve.

Forecast the lowest cash balance within the period

Prepare a forecast using real pay dates and supported collection assumptions. Use weekly totals for planning, then inspect the sequence within a week where timing matters. Include one-time transition costs and funds that cannot be spent freely. Choose the forecast horizon based on the business's payment cycle and unresolved dependencies.

The following fictional week is separate from the peg example. It starts with $100,000 of unrestricted cash. Scheduled payments total $110,000 and expected receipts total $30,000. Assume the listed events occur in this order, all funds are available when shown, and there are no other flows, overdrafts or restricted amounts.

Ending cash is $100,000 + $30,000 − $110,000 = $20,000. The lowest scheduled balance is $10,000 before receipts arrive. If all expected receipts move beyond the later bills, cash instead reaches −$10,000 before those receipts. That adverse case shows a funding gap; it does not authorize late payroll or unpaid bills.

The figures are arithmetic examples, not a recommended reserve. Assess a suitable cushion and response with the operator and lender. Identify actions before a projected shortfall, including committed funding and changes the parties can lawfully make. The EVV guide addresses one possible source of claim delays for affected services.

Reconcile deposits and future service duties

A resident deposit or advance payment may carry a refund or service duty. Identify who holds the cash, whether it is restricted and who must perform the obligation after closing. Read the agreement and applicable rules before deciding how to treat either side. Bank cash is not automatically free operating money.

Continuing-care communities need separate review of refundable entrance fees. Their conditions may differ from ordinary assisted-living deposits. Use the CCRC diligence checklist to connect the schedule with actual agreements, refund triggers and funding. A generic liability percentage does not explain those duties.

Reconcile every deposit category to its related funds and proposed deal treatment. Check whether either amount already appears in another adjustment or assumed liability. A clear schedule should show each item once and explain any difference. Ask counsel and the accountant to resolve restrictions and obligation-transfer questions before the closing statement is finalized.

Keep payer liabilities and price terms distinct

Excluding receivables from a purchase does not by itself remove every historical payer issue. Review recoupments, refunds and provider-agreement conditions separately. For Medicare-certified providers, section 489.18 addresses assignment and applicable conditions. A private allocation between buyer and seller does not alone determine what CMS can require. (Source: 42 CFR 489.18)

Keep ordinary trade balances apart from identified disputes and contingent claims. If the deal uses an escrow or indemnity, review its scope and practical ability to cover the exposure. A reserve does not cure the underlying issue. The ownership guide supplies the surrounding Medicare questions without treating all care models alike.

Agree on the later true-up and tax follow-through

The agreement should define who prepares the estimate, what records support it, when the final calculation occurs and how objections are resolved. Include the account definitions and accounting rules. A later calculation should not quietly switch methods to favor one party. The review period and any holdback are negotiated terms, not universal requirements.

For an applicable asset acquisition, a later change in consideration can affect Form 8594 reporting. The IRS instructions describe original and supplemental reporting. Ask the tax advisers to reconcile the closing statement and later adjustment with the actual filing duties. Book value, negotiated value and tax treatment need not be identical. (Source: IRS Form 8594 instructions)

Use the allocation guide for that separate task. Jason Taken can help organize the commercial schedules and open questions. The CPA, healthcare attorney and lender must assess the accounting, legal and funding conclusions. Keep their decisions connected to the final agreement and the buyer's dated operating forecast.

A borrowing base can limit the amount a business may draw against receivables. Its loan covenants can add reporting and other conditions. The bank underwriting guide connects those questions to the full cash-flow and collateral review.

The overpayment-liability example shows why a separate open issue cannot be treated as a repayment credit. Keep the payer’s current balance and the planned source of repayment visible alongside ordinary working-capital needs.

The care-home purchase-cost example places retained operating cash beside the other initial uses of funds. It shows why a lease deposit and a cash reserve are different entries, and why the same future rent should not be funded twice in the model.