Quick answer: Do not fund only the purchase price. The acquisition model should include enough working capital to cover the gap between settlement and normal cash generation. The amount depends on payroll, stock, supplier terms, customer payment timing, seasonality and any cash removed by the vendor at settlement.
A transaction can be affordable at settlement and still fail in month one because the buyer used every dollar as purchase equity. Working capital should be part of the acquisition funding structure from the beginning.
Already negotiating a purchase? Test the purchase price and opening working-capital requirement together.
Worked example: the hidden $150,000 after the purchase price
Illustrative sources-and-uses model.
| Item | Illustration |
|---|---|
| Purchase price | $900,000 |
| Stock adjustment at settlement | $60,000 |
| First payroll cycle | $45,000 |
| Supplier payments before customer receipts | $55,000 |
| Tax / rent / operating buffer | $40,000 |
| Opening liquidity required | $200,000 |
| Key question | How much of that should be buyer cash versus a facility? |
Map the first 90 days after settlement
Use actual payment dates rather than monthly averages. Payroll may be weekly or fortnightly, suppliers may require immediate payment, and customers may not pay for 30–60 days.
Check what cash stays in the business
The purchase agreement determines what cash, stock, receivables and payables transfer. A profitable P&L does not tell you what liquidity is available on day one.
Match the facility to the cash cycle
A term loan can fund a defined permanent requirement. A line of credit or overdraft-style facility may better fit a recurring timing gap. Invoice finance may be relevant where receivables create the gap.
Do not solve a structural loss with working capital
If the business burns cash after allowing a commercial owner wage and normal expenses, more liquidity only extends the runway. The acquisition price or operating plan may need to change.
What to do next
Request acquisition-finance options and include the first-90-day cash needs, not just the purchase price.
Frequently asked questions
Can working capital be included in acquisition finance?
Potentially. It should be identified and justified as part of the transaction rather than added after settlement.
How many months of working capital should I hold?
There is no universal number. Model the actual cash-conversion cycle, seasonality and downside case.
Does stock count as working capital?
Yes, but its funding treatment depends on the business, stock quality and facility structure.
What should the buyer ask the vendor for?
Aged receivables/payables, stock information, recent bank or management data where available, and details of what current assets and liabilities transfer at settlement.
Sources and verification
Related GPS Finance guides
- How much deposit to buy a business?
- Can target profit service the loan?
- Business line of credit or overdraft
General information only. Business and commercial lending policy, pricing, security, guarantees, documentation and approval vary by lender and transaction. Examples are illustrative and are not credit, legal, tax or accounting advice.
Need help matching this to a business-finance option?
GPS Finance can review the funding purpose, conduct, documents and lender fit before you make a formal enquiry.
