A business can show a profit and still leave its new owner short of cash in the first month. The purchase price answers what you pay for the company. It does not answer what you need to keep it operating while customers pay invoices and suppliers decide whether to extend credit.
Before agreeing to a closing date, build a weekly cash bridge covering closing day and the next thirteen weeks. Give each cash movement a date, an owner, and a source document. Keep financing proceeds and closing payments separate from operating collections so a large deposit does not disguise a recurring shortage.
Start with the cash that actually transfers
Ask the transaction team to identify the opening bank balance available to the buyer, accounts receivable being acquired, accounts payable being assumed, customer deposits, and any working-capital adjustment. These are transaction-specific terms. Do not assume the seller's displayed bank balance will remain in the business.
For every receivable, record the invoice date, dispute status, expected collection week, and evidence supporting that expectation. A report showing invoices as current is weaker evidence than customer payment history. Check whether collections go to an account controlled by the seller during a transition period.
A worked cash bridge
Consider a fictional service business. The buyer has $90,000 available for operations after closing. During the first four weeks, expected customer collections are $100,000. Payroll costs $84,000, supplier payments $50,000, rent and utilities $18,000, and other operating costs $12,000. Closing cash plus collections minus those payments leaves $26,000.
That month-end balance misses the timing risk. If $40,000 of collections arrive in week four while payroll is due in week two, the lowest weekly balance may be much lower. If the same $40,000 slips into the next month, the four-week balance becomes negative $14,000. Neither result is visible from the purchase-price headline.
Test the assumptions that can break in transition
- Supplier terms: ask whether a new entity or owner must pay cash until credit is approved.
- Customer billing: confirm purchase-order changes, bank-detail verification, and invoice routing before the first billing cycle.
- Payroll: include payroll taxes, benefits, processing dates, and any overlap between old and new providers.
- Customer deposits: identify the future work attached to money already collected. A deposit can create a service obligation without producing a new cash receipt.
- Seasonality: compare the closing month with actual prior-year weekly collections rather than dividing annual revenue by twelve.
Turn a shortfall into an explicit decision
Prepare a base case, a delayed-collections case, and a supplier-terms case. Document the lowest weekly balance in each. Then identify the source of funds, availability date, cost, and conditions for any additional liquidity. An unapproved line of credit is an assumption, not cash available on closing day.
Resolve uncertain transaction terms with the buyer's accountant, attorney, lender, and seller before relying on the bridge. The SBA's business-planning guidance encourages buyers to investigate cash flow, contracts, leases, and inventory. The worksheet below turns those diligence questions into a dated operating schedule.
Use this alongside the quality-of-earnings guide: earnings quality and cash timing answer different questions, and a purchase decision needs both.
Download the working checklist
Download the buying a business: cash needed before the first payroll worksheet (CSV). Fill it with verified information; blank cells identify work still to be done.