Estimating working capital for a company on cash basis accounting
I just started a role in corp dev for a firm that owns/operates medical practices. Almost all of the targets we look at are on cash basis accounting so we have to estimate seller working capital. Since there is no AR/AP on cash basis balance sheets, we typically estimate AR by asking the seller how frequently billing is submitted i.e. weekly, bi-weekly, monthly etc and estimate AR from there. For AP we typically base our estimate on how often the target pays its employees and largest vendors.
Is the above approach sound? How can it be improved?
I don't believe cash basis accounting has any receivables or payables since transactions only record when the cash moves.
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