A business when sold will either have cash in the bank or borrowings. Most sales proceeds usually come from a valuation framework. This framework is as follows:
Proceeds of sale = EBITDA x multiple of EBITDA + free cash – debt / borrowings.
The treatment of cash and debt/ borrowings in the business at the time of sale is either added (cash) to or deducted from (debt) to the enterprise value (EBITDA x multiple). There are various definitions of debt used but in simple terms it is all bank or other funder loans , invoice discounting, corporation tax and occasionally finance leases. The resulting cash free / debt balance must be then compared to the normal working capital requirements of the business. Working capital is debtors + stocks – trade and other creditors.
Finally, the seller is usually liable for the corporation tax due up until the date of sales. This is either deducted from the sales proceeds at completion of the deal or the seller has to pay this when it is due.