Cash-free debt-free
A pricing convention where the seller keeps the cash and clears the debt at closing, and the agreed enterprise value assumes neither is present.
Also called: CFDF · Cash-free, debt-free basis
Almost every enterprise value is quoted on this basis, whether or not the letter of intent says so explicitly. It means the buyer is paying for the operating business — the customers, contracts, people, and equipment that generate earnings — and not for the cash balance, and is not taking on the seller's borrowings.
Mechanically, the seller sweeps surplus cash and repays interest-bearing debt at or before closing, and the price is adjusted accordingly. The convention only works when both sides agree what counts as debt. Bank loans and capital leases are obvious; the arguments are about accrued vacation, deferred revenue, unpaid taxes, customer deposits, unfunded pension obligations, and earn-out obligations from previous acquisitions. Each of those is routinely claimed as debt-like by buyers.
It also interacts directly with the working capital peg. Cash is excluded from working capital precisely because it is handled by this convention, which is why the two mechanisms have to be read together rather than negotiated separately.
Where sellers get caught
- Agreeing the convention without agreeing the definition of debt-like items — that list is where the money moves.
- Sweeping so much cash that the business cannot meet the working capital peg.
- Ignoring customer deposits and deferred revenue in businesses that bill in advance.
Common questions
Does cash-free debt-free mean I keep all the cash?
You keep the cash, but you must still leave enough working capital to hit the peg, and any shortfall is settled against the price. In practice the two mechanisms decide together how much actually stays with you.
Is deferred revenue really debt?
Buyers commonly treat it that way, because it represents work owed to customers that the buyer must perform without receiving payment. Sellers who bill annually in advance should expect this argument and model it before signing an LOI.
Related terms
Enterprise value
The value of the business itself, independent of how it is financed — and not the amount the seller receives.
Net working capital
Current assets less current liabilities, excluding cash and debt — the operating fuel a buyer expects to be delivered with the business.
Working capital peg
The agreed level of net working capital the business must have at closing, with any shortfall or excess settled in cash afterwards.
Letter of intent
A mostly non-binding document setting out the proposed price, structure, and process, whose binding provisions typically cover exclusivity and confidentiality.
Guides that use this term
Where cash-free debt-free comes up in a real sale, and what it changes.
Last reviewed 2026-08-25. General information for business owners, not legal, tax, or financial advice — terms, thresholds, and tax treatment vary by jurisdiction and by deal.