---
title: "What Is Cash-Free Debt-Free?"
term: "Cash-Free Debt-Free"
description: "Cash-free debt-free (CFDF) is an M&A pricing convention where the purchase price assumes the company delivers no excess cash and no debt at close — with adjustments after closing for actual balances."
date: 2026-07-25T00:00:00.000Z
updated: 2026-07-25T00:00:00.000Z
topics: ["venture-capital"]
source: https://venturecapitaltracker.com/glossary/cash-free-debt-free
---

# What Is Cash-Free Debt-Free?

> Cash-free debt-free (CFDF) is an M&A pricing convention where the purchase price assumes the company delivers no excess cash and no debt at close — with adjustments after closing for actual balances.

**Cash-free debt-free (CFDF)** is a deal structure where enterprise value assumes the target has neither excess cash nor outstanding debt at closing — with post-close adjustments for actual balances.

### How it works

Buyers and sellers agree on **enterprise value**. Under CFDF:

- **Debt** is paid off at or before close — reducing equity proceeds to sellers
- **Excess cash** above a working-capital target often flows to sellers or adjusts price downward if cash is thin
- **Working capital target** (normalized WC) true-ups add or subtract from purchase price if closing WC differs

Example intuition: if EV is fixed but the company closes with more cash than agreed, sellers may keep some via price adjustment; less cash than target reduces proceeds.

Venture exits to strategics or PE often use CFDF language even when debt is minimal — clarity on cash traps, customer prepayments, and escrows still matters.

Negotiate the **locked-box** vs **completion accounts** mechanism up front: locked-box fixes price at a historical date; completion accounts true up at close — each shifts who keeps cash generated between signing and closing.

### Why it matters

- **Founders:** Negotiate WC peg and definition of "debt-like" items (convertible notes, unpaid taxes). Surprises in closing accounts erode headline valuation.
- **Investors:** CFDF standardizes comparables across portfolio exits; diligence focuses on quality of earnings and WC seasonality.

### Common mistake

Spending down cash aggressively pre-close without modeling WC true-up — sellers can lose dollars they thought were "theirs."

### Related ideas

See also [buyout](/glossary/buyout), working capital peg, enterprise value, and [change of control](/glossary/change-of-control).

## FAQ

### What is cash-free debt-free in simple terms?

The buyer pays for the business as if it has normal working capital but no extra cash pile and no bank debt — then accountants true up if actual cash or debt differs at closing.

### Why does cash-free debt-free matter?

For founders, CFDF affects how much cash you can distribute before close and what price adjustments hit at closing. For buyers, it standardizes valuation across targets with different balance sheets.


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Source: https://venturecapitaltracker.com/glossary/cash-free-debt-free