The short answer is that in a typical UK share sale you are paid for the cash that is genuinely surplus to the needs of the business, in addition to the agreed price, and the business is handed over with a normal level of working capital. The bank balance on the day is not simply added to the headline number, because some of that balance is what the business needs to keep trading. Almost every argument about cash at completion is really an argument about where that line falls. Nothing here is tax advice; the tax treatment of any structure is a matter for your accountant and tax adviser.
Enterprise value and equity value
When a buyer says your business is worth a multiple of EBITDA, they are almost always describing enterprise value: the value of the trading business itself, independent of how it happens to be funded. What lands in your bank account is the equity value, which is enterprise value plus surplus cash, less debt and debt-like items, adjusted for any difference between actual and normal working capital.
This is why two businesses with identical profits can fetch the same enterprise value but leave their owners with very different sums. One is debt-free with cash on deposit; the other carries a loan and an unpaid tax liability.
Cash-free, debt-free in practice
"Cash-free, debt-free" is shorthand for a pricing convention, not a statement that the buyer keeps your cash. The business is priced as though it had neither cash nor borrowings, and the actual positions are then settled in the price. The table below is an illustrative example only. The actual treatment of cash, debt and working capital on any transaction depends on the agreed structure and on what is set out in the heads of terms.
| Enterprise value agreed | £6,000,000 |
| Cash at bank | £900,000 |
| Cash required as normal working capital | (£400,000) |
| Surplus cash added | £500,000 |
| Bank loan and finance leases deducted | (£750,000) |
| Unpaid corporation tax treated as debt-like | (£150,000) |
| Equity value payable to shareholders | £5,600,000 |
The owner in that example is paid for their cash, but only the £500,000 that the business does not need. The remaining £400,000 was never really theirs to extract; it funds the payroll run and the supplier payments that fall due the week after completion.
Why working capital is the real negotiation
A buyer expects to receive the business with a normal level of working capital, so it can trade from day one without an injection of funds. "Normal" is usually defined as an average of the preceding twelve months, sometimes adjusted for seasonality or growth. If the actual position at completion is below that target, the price is reduced; if it is above, the price is increased.
This is where value is quietly won and lost. A business with pronounced seasonality, lumpy customer receipts or large advance payments can produce a target that materially misrepresents its normal position. Sellers who have not examined the calculation carefully sometimes discover a six-figure adjustment against them for a figure they never scrutinised.
Debt and debt-like items
Buyers will seek to treat a range of items as debt: borrowings and overdrafts, finance leases and hire purchase, unpaid tax including VAT and PAYE, declared but unpaid dividends, accrued bonuses, deferred consideration from earlier acquisitions, dilapidations provisions, and sometimes creditor balances that have been stretched well beyond normal terms. Each deduction reduces what you receive pound for pound, so the definitions in the heads of terms deserve close attention.
Share sale or asset sale
In a share sale the buyer acquires the company and everything in it, including the bank account, which is why the cash and debt adjustments exist. In an asset sale the buyer acquires specified assets and liabilities; cash normally stays with the company, but so do the liabilities that were not assumed, and the company itself still has to be dealt with. The two structures produce different tax outcomes for a seller, which is a matter for your tax adviser and should be settled before the price is agreed rather than after.
Completion accounts or locked box
Two mechanisms are commonly used to settle the final position. Completion accounts fix the price provisionally, then prepare accounts as at the completion date and true up the cash, debt and working capital figures afterwards, typically within one to three months. It is accurate but leaves part of the consideration unresolved after you have handed over the business, and it can generate disputes.
A locked box fixes the price by reference to an agreed historic balance sheet date. Economic risk and reward pass to the buyer from that date, and the seller undertakes not to extract value in the meantime beyond agreed permitted payments. It gives price certainty at signing, which many sellers prefer, but it requires the reference accounts to be reliable.
Common misunderstandings
- "They offered £6m, so I get £6m." Not if there is debt, unpaid tax or a working capital shortfall.
- "The cash is mine, I will just take it out first." Only the surplus, only with agreement, and the timing and method have tax consequences.
- "Working capital is a technicality for the accountants." It is a price term, and it is negotiated at heads of terms, not at completion.
- "We can settle the detail later." Once exclusivity has begun, the leverage to settle definitions favourably has gone.
What to do next
Before you accept an offer, ask for it to be expressed as both enterprise value and expected equity value, with the assumed cash, debt and working capital target stated. Our guide to business valuation explains how the underlying enterprise value is arrived at, and the sell-side process shows where these terms are agreed.
Common questions
Can I just take the cash out before completion?
Sometimes, and it is often the cleanest approach, but only for genuinely surplus cash and only with the buyer's agreement reflected in the heads of terms. The business still has to be handed over with enough working capital to trade normally. The method and timing of any extraction has tax consequences, so take advice from your accountant and tax adviser before doing anything.
Is cash-free, debt-free the same as the buyer keeping my cash?
No. Cash-free, debt-free means the price is agreed for the business itself, then adjusted: surplus cash is added and debt is deducted. Properly applied, you are paid for the cash. The disputes arise over how much cash is genuinely surplus rather than needed to run the business.
What counts as a debt-like item?
Anything that behaves like borrowing even if it is not labelled as such. Common examples include overdrafts and loans, finance leases, unpaid tax, deferred consideration owed on an earlier acquisition, declared but unpaid dividends, accrued bonuses, and in some cases unusually stretched creditor payment terms. Buyers argue for a wide definition; the negotiation is over where the line sits.
Does this apply to an asset sale too?
The mechanics differ. In an asset sale the buyer acquires specified assets and liabilities, and cash typically remains in the company unless it is expressly included. The company then still has to be dealt with afterwards, with its own tax consequences. The structure should be settled early because it affects both the price and what you ultimately receive.