The deal closes. The wire goes through. The seller shakes your hand and walks out the door. And for the first time, the business is yours. What happens in the next 90 days determines whether you survive.
Most first-time buyers spend months on due diligence, valuation, and deal negotiation. They hire attorneys, engage CPAs, argue over reps and warranties. All of that matters. But the thing that actually kills new owners is not a bad purchase price or a missed liability. It is running out of cash in the first quarter because they did not model the working capital cycle with enough precision.
I have seen this play out across every type of service business I have been involved in, from pool construction to childcare. The mechanics differ by industry, but the pattern is the same: money goes out faster than money comes in, and the gap is bigger than anyone expected.
The Timing Problem Nobody Models
In a service business, expenses hit on a fixed schedule. Payroll runs every two weeks. Insurance premiums are due monthly or quarterly. Vehicle leases, licensing fees, software subscriptions, fuel costs. None of these obligations care whether customers have paid their invoices.
Revenue, on the other hand, arrives on its own schedule. In construction-adjacent businesses like pool installation, remodeling, or fencing, the gap between incurring costs and collecting payment can stretch for months. Materials are purchased when the job starts. Labor is paid as the work progresses. But the final invoice might not go out until the project is complete, and collection might take another 30 to 60 days after that.
A buyer who closes on January 1 and expects to operate off the cash the business generates in January is in for a problem. The January cash that hits the bank account is mostly revenue earned in November and December, during the seller’s tenure. The work the new owner performs in January will not convert to collected cash until February or March at the earliest.
This is the cash conversion cycle, and in service businesses, it is the single most dangerous variable that new owners underestimate.
Customer Deposits Are Not Your Money
Here is the one that trips people up more than anything else: customer deposits.
A pool construction company might have $200,000 in the bank at closing. That looks like a healthy cash position. But dig into the details and you find that $150,000 of it represents deposits collected from homeowners for jobs that have not been started or are still in progress.
That money is not yours. It is an obligation. You just bought the responsibility to deliver on someone else’s promises, and you need the cash to do it. The materials still need to be purchased. The crews still need to be paid. And the remaining balance on those contracts might not be collectible for weeks or months.
If the purchase agreement does not account for this, the buyer is effectively paying full price for the business while also inheriting a pile of unfunded liabilities. The seller got the deposits, the buyer gets the obligation. This single issue has caused more post-closing disputes than almost any other deal term I have encountered.
Payroll Does Not Wait
In every service business, labor is the largest ongoing expense. It is also the one with the least flexibility in timing. Employees expect to be paid on schedule. Miss a payroll and you lose your workforce overnight.
The first payroll after closing is the moment reality hits. In a business with 15 field employees averaging $45,000 per year, the biweekly payroll obligation is roughly $26,000 before taxes and benefits. Add employer-side payroll taxes, workers’ comp, and health insurance, and the real number is closer to $32,000 to $35,000 every two weeks.
That is $70,000 per month going out the door before a single material is purchased or a single vendor invoice is paid. If the business is not generating enough collected revenue in month one to cover that burn rate, the difference has to come from somewhere. Either the buyer funds it out of pocket, draws on a line of credit, or starts making the kind of compromises that erode the business from the inside: delaying vendor payments, deferring maintenance, stretching the crew too thin.
Vendor Terms Reset at Closing
Long-time owners often have favorable terms with their suppliers built up over years of relationship and payment history. Net 30, Net 45, sometimes even Net 60 on large material orders. The new owner does not inherit those terms. Vendors know the business has changed hands. They tighten credit, shorten payment windows, or require COD until the new owner establishes their own track record.
This means the cash outflow in the first 90 days can be significantly higher than what historical financials suggest. The seller was paying for materials 45 days after delivery. The new owner might be paying on delivery or within 15 days. That acceleration compresses the cash conversion cycle and increases the working capital requirement.
Smart buyers negotiate vendor introductions as part of the transition plan. They meet with the top five or six suppliers before closing, establish the relationship, and work out terms in advance. Showing up after the deal is done and asking for the same credit the prior owner had is a weak negotiating position.
Model the First 90 Days Week by Week
Annual projections hide the problem. Monthly projections sometimes catch it. Weekly projections expose it clearly.
Build a 13-week cash flow model that maps every dollar going out and every dollar expected to come in. Start with the obligations that land in week one. What payroll falls due immediately? Are there vendor invoices already past due that need to be settled? What insurance premiums are coming up? Is there a lease payment due on the first of the month?
Then map the expected cash inflows. Which customers have outstanding invoices? When are they likely to pay? Are there deposits held for uncompleted work? What new jobs are scheduled to start, and when will they generate collectible revenue?
The difference between cash out and cash in, week by week, is the working capital gap. That gap is the number the buyer needs to fund from day one. It is not optional. It is the cost of keeping the lights on while the business transitions to new ownership.
The Safety Buffer Is Not a Luxury
Whatever the 13-week model says the working capital gap is, add 25 to 30 percent. Things will be worse than the model predicts. A customer will dispute an invoice. A piece of equipment will break. A crew member will quit and the replacement will cost more than planned. The roof will leak. Something will go wrong because something always goes wrong in the first 90 days.
The buyers who survive the transition are the ones who over-prepare on cash. They walk into day one with a funded reserve, a line of credit in place, and a clear-eyed understanding that the first quarter is about survival, not growth.
The ones who fail are the ones who put every dollar into the purchase price, close with no reserves, and assume the business will fund itself from day one. It will not. Not in the first 90 days. That is the trap, and the only way to avoid it is to see it coming before you sign.