Cash-Free Debt-Free (CFDF): Meaning

Cash-free debt-free

Also known as: CFDF, debt-free cash-free, cash free debt free basis

Definition

Cash-free debt-free is the most common basis for pricing private company transactions. The buyer pays for the business as if it had no cash and no debt, the seller retains the cash and repays the debt at closing, and the business is delivered with a normal level of working capital.

Updated November 2026

Cash-free debt-free, explained simply

The buyer pays for the operating business, not its bank balance or borrowings. A working capital peg prevents the seller from extracting value by running down receivables or inventory before closing.

The basis moves the negotiation into definitions: what counts as debt, what counts as cash and what is normal working capital. Financial due diligence supplies the evidence.

The three parts of a CFDF price

Illustrative

Worked example

The LOI price for Alder Creek is $36.8 million, cash-free and debt-free, with a normal level of working capital. At closing $7.1 million repays the loans and leases, $2.1 million covers debt-like items, $1.2 million of cash in the business is added to the seller’s proceeds and $0.2 million is deducted for the working capital shortfall. The seller receives $28.6 million.

Alder Creek Manufacturing, Inc. is a fictional company. All figures are illustrative.

Why it matters in a deal

CFDF makes offers comparable, but it makes the definitions of debt, cash and working capital the principal points of negotiation.

Red flags

No definition of debt or working capital in the LOI
Trapped cash, such as customer deposits, counted as free cash
Working capital run down just before closing

Frequently asked questions

What is cash-free debt-free in M&A?

Does cash-free mean the business has no cash at closing?

Not necessarily. Any cash left is usually paid to the seller as an increase in price.

Is CFDF standard in the US?

Yes, it is the most common basis in US private transactions.