Cash-free, debt-free

Definition

The seller keeps the cash and clears the debt, so you buy operations.

Why It Matters

Most small-business deals are quoted this way without anyone saying so, and knowing the convention keeps you from paying for cash that leaves with the seller or inheriting debt nobody priced. The argument that follows is never about the phrase but about what counts as debt: deferred revenue, accrued vacation, customer deposits, and unpaid taxes all behave like debt and all get argued as working capital. Name each of them in the LOI rather than discovering the seller's definition at closing.

In numbers: On a $1.2M cash-free debt-free deal, the seller keeps the $80k in the operating account and pays off a $150k equipment loan at closing; the buyer funds fresh working capital on top of the price.