Does the asking price include inventory, receivables and working capital?

What does a Main Street asking price usually cover?

There is no single rule. The listing and the purchase agreement decide. But these conventions are common in deals priced as a multiple of SDE:

• Usually included: furniture, fixtures and equipment; goodwill; the trade name, phone numbers, website and customer lists; the seller's non-compete.
• Often handled separately: inventory. Listings may say "plus inventory," meaning you pay for it at cost on top of the price, counted at closing. Others include inventory up to a stated amount.
• Usually excluded: cash in the bank and accounts receivable, which the seller keeps.
• Usually the seller's: accounts payable, loans and other debt, paid off from the proceeds. This is often called "cash-free, debt-free."

The consequence: when you take over, the business has no cash and no receivables coming in from past work. You pay wages, rent and suppliers from day one while waiting for your first collections. That is working capital, and on Main Street deals the buyer usually brings it.

How is it different in larger deals?

Above roughly $1 million of earnings, buyers price businesses on EBITDA instead of SDE. In those deals, the price usually assumes the business comes with a normal level of working capital: receivables and inventory minus payables. The parties agree on that normal level, called the peg. At closing, if actual working capital is below the peg, the price goes down; if above, it goes up.

This difference matters when you compare multiples. A 2.57x SDE multiple on a Main Street deal and a 4.5x EBITDA multiple on a larger deal do not buy the same bundle of assets. The second one usually includes working capital. The first one usually does not.

Why does this matter for an SBA loan?

Under SBA SOP 50 10 8.1, the 10% minimum equity injection is measured on total project costs: purchase price plus working capital, fees and closing costs. Every dollar of inventory and working capital you add raises the injection.

Two other rules apply. Total debt is capped at the independent appraised value of the business, and any gap between price and valuation comes from your cash. And coverage of at least 1.25x is tested on historical cash flow, so a larger loan to fund inventory and working capital must still be covered by the same earnings.

Worked example: what an $800,000 listing really costs

A listing at $800,000 "plus inventory." SDE is $300,000. Illustrative figures:

1. Asking price: $800,000.
2. Inventory at cost, counted at closing: $90,000.
3. Receivables of $70,000 stay with the seller, so you need working capital to cover payroll and bills until your own collections arrive: $60,000.
4. Fees and closing costs: $30,000.
5. Total project costs: $800,000 + $90,000 + $60,000 + $30,000 = $980,000.
6. 10% injection: $98,000. SBA loan: $980,000 − $98,000 = $882,000.
7. Annual debt service at 10% over 10 years: $139,868.

Now the buyer who read only the asking price:

1. Assumed project costs: $800,000 + $30,000 = $830,000.
2. Assumed injection: $83,000. Assumed loan: $747,000. Annual debt service: $118,460.
3. Cash shortfall at closing: $98,000 − $83,000 = $15,000.
4. Extra loan needed: $882,000 − $747,000 = $135,000, adding $21,408 a year in debt service.

The multiple changes too. The headline is $800,000 ÷ $300,000 = 2.67x SDE. Including the inventory you must buy, it is $890,000 ÷ $300,000 = 2.97x. Compare like with like before you call a price fair.

What should you put in the LOI?

1. State what the price includes and excludes, item by item.
2. For inventory, state whether it is included or added at cost, who counts it, when, and how obsolete or damaged stock is treated. Set a cap or a target level.
3. State that cash and receivables stay with the seller, or that a working capital peg applies, and how it is measured.
4. State that the business is delivered free of debt and liens.
5. Agree on how the price will be allocated among asset classes. Buyer and seller both report the allocation to the IRS on Form 8594, and goodwill is amortized over 15 years for tax. Confirm the allocation with your CPA.

Where these numbers come from: Injection, valuation cap and coverage rules are from SBA SOP 50 10 8.1 as summarized by Beancount and Cantrell Firm. The 2.57x SDE average and the switch to EBITDA are from Beancount's analysis of BizBuySell data. The 4.5x EBITDA median is GF Data via Carry and Conquer. The 10% rate is prime plus 3% as of September 2026 per NerdWallet; check current prime. Deal figures are illustrative. No sourced figure shows how often listings include inventory, so the conventions above are described without percentages. SOP 50 10 8.1 applies to loans numbered on or after October 1, 2026; lender practice under it is still settling and these are secondary summaries, so confirm current terms with your SBA lender.

Related questions

Should I ask the seller to leave the receivables?

You can. Buying receivables gives you cash coming in from day one, but it raises the price and the injection. Either way, budget working capital for the time until your own collections arrive.

What if inventory at closing is much higher than normal?

A seller can build inventory before closing to raise the "plus inventory" figure. Set a maximum in the LOI, count it jointly and exclude slow-moving stock.

Is real estate included in the multiple?

Usually not. Real estate is typically priced separately. In an SBA loan, real estate can amortize over up to 25 years, while the business portion is limited to 10.

Who pays the seller's debts at closing?

The seller, from the proceeds, in a typical asset purchase. In a stock purchase, liabilities stay with the company unless the agreement says otherwise. Have counsel confirm which applies to your deal.

What comes next

Once you know what the price buys, you can set your own number. See how much you should pay for a business. If you plan to make more acquisitions, define these terms the same way in every LOI, because consistent deal terms make each later purchase faster to finance and to integrate.

Related articles

• How much should I pay for a business?
• How do you tell a good deal from a bad deal?
• Are inventory and receivables included when you buy a business?
• What is a working capital peg?
• How do you build a holding company for acquisitions?

Meraki Dealmakers is a service of Meraki Partners, LLC, an advisory firm. It is not a broker-dealer, investment adviser, business broker, law firm or accounting firm. This article is general information, not legal, tax or investment advice.