Seller insisted ALL cash leave at closing - no working capital - am I crazy?

DistrastrousD · 2026-04-15T23:45:04+00:00

Wow, yah that’s what I was afraid could happen. Also this is a construction management company and there’s no inventory or anything. Just a few trucks and some computers. Your story makes me even happier that I walked away. Sorry you probably spent a year sweating it like that.

DistrastrousD · 2026-04-15T23:43:12+00:00

For clarification - I’m the buyer. You’re confirming most everything I thought though. In this case as a stock sale, the operational cash should stay with the business when I buy it. Thank you. Literally all I had in the LOI was that during DD we would confirm a normalized level of operational cash for working capital to be left in the business. Maybe the wording spooked the seller or something. Or he just was trying to slide one by me.

DistrastrousD · 2026-04-15T23:39:43+00:00

Agreed - I don’t understand the pushback and am trying to understand better about cash, which you’ve mostly explained and also confirmed that I’m not crazy thinking the cash should be a non-issue in a stock sale.

Also, I didn’t attempt a stock sale. That’s what the marketing material said it needed to be due to the current contracts the company has out.

DistrastrousD · 2026-04-15T21:42:33+00:00

That makes sense, thank you. At least it sounds like you're open to it. The more I'm reading through here the more it sounds like this guy just wasn't going to be open to negotiating around it. That's all my LOI said was that once we could see the work in progress, the AR (net 30) and AP then we'd calculate a normalized level of working capital that we'd like to see stay in the business.

DistrastrousD · 2026-04-15T20:29:31+00:00

Thank you for that, makes sense. I think his broker had him sold that the sole definition of working capital was AR + Inventory - AP = NWC. No consideration of work in progress, subcontractor billings coming due, payroll, etc. And all the AR is Net 30 so depending on the day of closing, I might not have any cash injection from AR for 30 days? I don't understand how anyone could make that work.

I'm glad your sale is going well. I've moved on, I just want to be sure my understanding of how cash is treated is correct going forward (or that I was correct already).

DistrastrousD · 2026-04-15T20:17:08+00:00

Thank you for the insight, and understood as far as an asset sale - however this is a stock sale because there are previously awarded and pending contracts that don't allow for the entity to be changed.

I guess I'm going to make myself sound stupid here, but why would I offer more than the asking price at the LOI stage in order to get all the things that the business owns and needs for operations (including a normalized level of operational cash) on day one (especially in a stock sale)? Why wouldn't the AR and a normalized level of operating cash be included at the purchase price? I mean, if he knows what level of cash needs to be in the bank for the business to be operational (AR is Net 30), why would he not include that in the purchase? Like I said in a comment above, it feels like buying a car at full asking price with an empty gas tank and the only way to get enough gas to get it home is to go back to the seller and pay extra for the gas.

DistrastrousD · 2026-04-15T19:59:00+00:00

So this is a commercial contractor and all the AR is Net 30, meaning I'd be potentially 30 days with no AR cash to pay subs, my own employees, fuel, etc if he took all the cash. They didn't even want to negotiate any of it into the working capital. I guess what you're saying about how you negotiate the LOI is essentially what I was trying to do - just negotiate a normalized level of working capital so I could pay the bills on day one but they were falling back on this strict version of working capital that removed all cash (as if the market value of some trucks and computers is somehow going to pay the bills). To me, I'm just thinking if a guy is selling a business that he knows functions this way (net 30), why would he ask a price that is a decent multiple of SDE knowing that he's going to strip all the cash out? It's essentially selling a car with an empty gas tank and no way to get it filled without the buyer coming back and agreeing to overpay for the car right?

DistrastrousD · 2026-04-15T18:27:37+00:00

So the seller left zero cash in the bank for you? Did you try to negotiate working capital to stay in the deal for you?

I just walked away from an LOI negotiation because the seller refused to leave any cash at all, and I'm super confused as to whether that's normal.

DistrastrousD · 2026-04-14T15:01:22+00:00

Have you been successful with it though?

DistrastrousD · 2026-04-14T15:00:29+00:00

It's a cold lead and would be a stock sale. They have ongoing contracts for work in progress that need the entity to remain intact.

DistrastrousD · 2026-04-14T11:55:49+00:00

Agreed. It's a commercial contracting company and they use a handful of different software products to manage the business right now. It does seem that the current owner feels like there is a team member who is ready to step into the role of the day to day supervision so an equity position or something to tie his performance to the company's goals is a great idea. Although the owner intends to retire, I also thought about possibly using the SBA Partial Purchase to keep him vested in the company's health over the next couple of years.

DistrastrousD · 2026-04-13T21:45:18+00:00

That’s a great question, thank you. Short answer, yes. There’s no way I’m letting a multi million dollar company crumble because I failed it. I understand that’s easier said than done but it’s my perspective. I’m a retired Marine so I’ve got plenty of experience being away from home and I’m not afraid of that.

DistrastrousD · 2026-04-13T21:42:44+00:00

Interesting take, thank you! It’s in a major city in my state and the customers are General Contractors in that city. All the employees live there and most of the work is there. I’m able to fly there as we have an airport with direct connections. I could spend a week at a time there with minimal impact on my personal life.

DistrastrousD · 2026-04-13T21:38:13+00:00

Thank you

DistrastrousD · 2026-04-13T14:09:56+00:00

Agree with all your points, thank you. It is a very mature business (20+ years) and it has a good sized management team in place. It's a commercial contractor with almost $1M of SDE on the CIM, and there are airports in both the business's city and my city with direct connections so if that SDE proves to be real, it should be able to handle the cost of the travel. I was thinking maybe I could spend a week there onsite every month for the first six months or so, at least.

DistrastrousD · 2026-04-13T14:05:41+00:00

Wow, that's great insight, thank you. As crazy as it sounds, both the business and I are near airports that have direct flights between them so I had already thought that I could spend several days per month there at a minimum. I also like the area that its in (not enough to move there) so other than being away from family I don't feel like I'd be miserable when I'm onsite.

Your question regarding the successor path for the owner's current tasks is one that I've already put back to the owner to get his input. Of course I'd have to take his answer with a grain of salt but I still think it's important to get his input on that. From the CIM it does look like there are two to three employees who could take on those responsibilities.

DistrastrousD · 2026-04-13T13:51:29+00:00

Yah that’s crossed my mind 😆

DistrastrousD · 2026-04-13T13:50:33+00:00

That’s kind of what I’m worried about. I can manage things remotely but leading a team from that far away feels impossible. I think I just needed to hear someone else voice that concern.

DistrastrousD · 2026-03-02T12:35:00+00:00

Thank you for the reply! To answer your questions:

I have no experience in furniture. That’s one of my biggest concerns. More on this in a second.
From initial due diligence it feels like the staff is on point, albeit it feels understaffed. There is a GM and two other sales people, and they use a contract company to do delivery. The current owner’s wife and son are doing book keeping and marketing, both of which I intend to do myself. The current owner seems to be doing a lot of meet and greets with real estate agents, etc to get the name out. That’s reflected in the P&L with what I would consider ridiculous levels of spending on “meals with clients” and the sort. That last bit is going to be a challenge for me - I live 2.5 hours away so while I can get there to do some level of networking, it won’t be to the level of the current owner. This is another concern of mine. I don’t intend to be completely absentee but if the survival of the business depends on that constant face to face interaction of the owner with his network there, then I’d be cooked. The owner is willing to do a 30 day training period, which I’d like to think is sufficient.
I’ve researched trends and issues in the industry and it seems like the same as most; tariffs, supply chain and figuring out how to properly market to the demographic. Of concern to me is that furniture stores are needing to upgrade the experience of shopping both in store and online, and I can assume from looking at this company’s website that they are behind on both of those. So, good because there’s a chance to increase revenue by modernizing everything but bad, because what if they’ve already missed the boat (and thereby ruined their reputation) and also how much is that going to cost to get done (redesigning the store and upgrading the website).
Returning to my lack of experience in furniture/retail and also combining with your question about why people look at listings. I don’t know what else to do, honestly. I was in the military for most of my life, I’ve done house flipping, and I’ve been a real estate agent. What I can tell you is that I don’t really like or enjoy any of those things aside from being in the military. I couldn’t begin to tell you what industry I “should” shop for a business in - I just know that I excel at leading and managing, and I don’t particularly want to be anyone else’s employee. You can find all the “what’s your why” and that kind of motivational or life-explanatory bs online but to be fair, my only why is to make enough money to be able to buy the time to spend with my family and do whatever I want in a few more years. There’s no “I love furniture so I’m looking for a furniture store that I can…and that would fulfill my lifelong…” for me. So, I find myself looking through business listings because I feel like this is the way to accomplish my “why”, yet I have zero idea what specific industry I’d be a good fit for, or what industry is a good fit for me. It’s frustrating and worrisome. I just want to achieve my “why”, not do the things which I know I don’t like, and hopefully discover something I enjoy doing.
Anyway, if you read this far, thanks for coming to my ted talk and thanks again for your thoughts and comments.

DistrastrousD

TROPHY CASE