The target’s receivables still collect on their old schedule and its payables still fall due on their old schedule the day after closing. What changes on day one is the new debt service and the statutory obligations that arrive with ownership, whether the cash conversion cycle is ready for them or not.
Key takeaways
The target’s customers do not pay faster because ownership changed hands, and its suppliers do not wait longer. The accounts receivable and accounts payable cycles that diligence measured are, absent a specific reason to expect otherwise, the cycles that continue to operate after closing. What is new is the acquisition debt service: term-loan and, where used, vendor take-back payments typically begin on a schedule set at closing, independent of whether the business’s own cash happens to be flush or tight in that particular month. A cash squeeze in month one is rarely caused by the business underperforming — it is usually caused by a new fixed obligation landing before the existing collection cycle has had time to catch up.
One obligation continues without any grace period at all. Subsection 153(1) of the Income Tax Act requires every person paying salary or wages to “deduct or withhold from the payment the amount determined in accordance with prescribed rules and… remit that amount to the Receiver General” at the prescribed time. Amounts withheld from employees are held in trust for the Crown, not discretionary company cash — and that obligation attaches to whoever is now the employer, from the first payroll run after closing. A buyer who has not confirmed the target’s remittance frequency and due dates before closing can find a source-deduction remittance landing in the same week as the first acquisition-debt payment, with no relationship between the two beyond bad timing.
Where employees continue with the new owner, the obligations that come with that continuity are cash commitments from day one, not administrative details to sort out later. In Ontario, statutory notice entitlement carries over from service with the seller, and during any working notice period the employer “must not reduce the employee’s wage rate… and must continue to make whatever contributions would be required to maintain the employee’s benefits plans.” In British Columbia, continuity is automatic on the disposition itself under section 97 of the Employment Standards Act, and expressly extends even to a receivership. Whichever province the target operates in, payroll and benefits continuity is an immediate cash outflow inherited on closing, not a cost that ramps up gradually.
The annual or monthly model used to value the acquisition is the wrong tool for the first 90 to 100 days. It was built to test whether the business justifies the price over a multi-year horizon, not to catch a specific week where a debt-service payment and a source-deduction remittance both land before a large receivable converts to cash. A rolling weekly forecast for the immediate post-closing period, built directly from the target’s actual AR and AP terms uncovered in reviewing bank statements line by line, is the tool that actually surfaces a timing gap early enough to do something about it — renegotiating a payment date, drawing a line of credit, or simply knowing in advance that a specific week will be tight and is not a sign anything has gone wrong.
Where the acquisition financing runs through the Canada Small Business Financing Program, a line of credit is available as a specific, named facility for exactly this purpose. ISED’s own programme guidance sets it at “up to a maximum of $150,000 for lines of credit”, and a 2022 programme bulletin clarifies this is available “over and above” the working-capital portion available under the term-loan product. It has to be arranged as part of the financing package put together before closing, not retrofitted afterward once a gap has already appeared — which is one more reason the short-horizon forecast above needs to run before closing, not after it.
Where the target is a contracting business, the forecast has to account for one more layer: the statutory holdback described in work in progress on a contracting business sits inside receivables as real, earned revenue that is specifically not available to collect until the applicable lien period passes, regardless of how the rest of the business is performing. A first-100-day forecast that treats WIP-linked receivables the same as ordinary trade receivables will overstate what is actually collectible in that window, which is precisely the kind of gap a rolling weekly forecast is built to catch before it becomes a surprise.
Suppose the acquisition debt service’s first payment is due on day 20 after closing, and the target’s largest single receivable — roughly a quarter of a typical month’s revenue — historically collects on day 35 to 40, a pattern set out here only to illustrate the mechanics. Nothing about that pattern is a problem in a steady state, where the business has built up a cash buffer over prior months. In the first month after closing, with no such buffer yet built by the new owner and a payroll remittance also due in the same window, the same ordinary collection pattern can produce a genuine shortfall — one a weekly forecast built before closing would have shown clearly, and a working capital line arranged in advance would have covered without drama.
That depends entirely on how the deal is structured — a cash-free, debt-free basis leaves working cash with the seller and prices the business separately from it, while other structures leave cash in place. It is a negotiated point, not a default, and it needs to be settled before the cash forecast can be built.
It depends on the specific facility and its amortization schedule, which is set at closing — there is no standard timing across deals. The point is to know your own deal’s schedule and test it against the target’s actual collection pattern before closing, not to assume it will simply work itself out.
A fixed deadline — a debt-service payment or a source-deduction remittance — landing before a large receivable converts to cash, in a period where no cash buffer has yet had time to build under the new ownership.
A short call is enough to map the target’s AR/AP cycle against your own acquisition debt schedule.
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