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what does initial capital mean? Is that the total down payment for a business?

I have a potential buyer asking me why I have say $20,000 as the "initial fee" and $2,500 as the "initial capital". I thought "initial capital" was the cash they'd need to invest once they'd purchased the business. Are "initial fee" and "initial capital" the same thing?

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Answers (2)
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Signal Hill Holdings, LLC
General Partner
CT

It sounds to me as though you are selling a business(an ongoing business?) and used those terms to refer to the down payment and working capital requirement respectively. However, "Initial Fee" sounds more like a lawyer's retainer than a down payment. "Initial Capital" might be reasonably accurate but sounds more like a startup investment than any term used in a business sale.

Nov 9, 2014
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The BAF Group LLC
MD

"Initial fee" is a meaningless term. "Initial capital" can be interpreted a number of ways, because so many people use vague terms - frequently incorrectly. But initial capital usually means all of the cash you have to invest in the business. Normally, it includes any deposit, subsequent deposits to use for acquiring a loan, and any cash reserves to be utilized once you initiate operations, before you achieve a break even point. Remember that, even if you are buying a mature business, you may not walk into a cash-positive position. If the business provides goods or services and bills the Clients for later payment, you could have a sizable negative cash flow until those bills are actually paid.

Tell the Buyer to explain him/herself.

Nov 4, 2014

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