Key Takeaways
- Define every included and excluded account in the purchase agreement.
- Use monthly history to capture seasonality and payment timing.
- Coordinate the target with tuition deposits, debt, cash, and purchase-price terms.
Why it matters in a child care sale
A center must fund wages, food, insurance, rent, and compliance costs immediately after closing even if collections arrive later. Sellers need clarity so the buyer does not receive value twice through price and an excessive target. Buyers need enough ordinary-course liquidity without inheriting uncollectible receivables or undisclosed obligations.
The definition is deal-specific. Cash, debt, tuition receivables, subsidy receivables, deposits, prepaid tuition, payroll accruals, gift balances, and owner items may be included, excluded, or treated separately. A target based only on a year-end balance can miss seasonality, subsidy timing, payroll cycles, and enrollment deposits.
Example
Illustrative transaction example: The parties define eligible receivables, excluded cash, payroll accruals, parent deposits, and the measurement date in a schedule. They test the proposed target against monthly balances and collection history, then provide a post-closing adjustment procedure. This example describes mechanics without assuming a target amount.
Related terms
- Asset purchase agreement — review the connected definition before finalizing structure or economics.
- Asset sale — review the connected definition before finalizing structure or economics.
- Seller note — review the connected definition before finalizing structure or economics.
The broader child care center valuation framework helps place this term in context. Sellers can review sale preparation, buyers can review acquisition preparation, and both sides can see the transaction process.
Frequently asked questions
Is working capital included in every daycare sale?
No. The structure is negotiated. Some transactions use a target, while others exclude most current assets and liabilities and fund operations differently.
Are tuition receivables always included?
No. Eligibility, aging, collectability, subsidy status, cutoff procedures, and post-closing collections should be expressly defined.
Are parent deposits working capital?
They may be treated as an assumed liability, price adjustment, or separate settlement item depending on the contract and applicable law.
Why use a post-closing true-up?
Final balances may not be available at closing. A defined true-up compares delivered working capital with the agreed target under consistent rules.