Glossary · Reading the business
Pre-Paid Expenses
In short
Expenses paid in advance for goods or services that will be consumed in the future, such as insurance premiums or rent. They are recorded as assets on the balance sheet.
What it means in a deal
When reviewing a business's financials, identify significant pre-paid expenses. These represent future benefits already paid for, which can be valuable to you as the new owner. Ensure these assets are appropriately transferred or credited in the purchase agreement. They can impact the working capital calculation at closing.
Related terms
Common questions about Pre-Paid Expenses
- Which pre-closing business expenses can count towards equity?
- Are prepaid rent or insurance expenses paid before closing considered part of the equity injection?
- Can I use pre-closing expenses, like a business broker's fee, as part of my equity injection?
- Can a buyer contribute a pre-paid lease agreement for the business premises as part of their equity injection?
- Can a substantial pre-paid rent deposit on a commercial lease count towards the equity injection for a business acquisition?
- What kind of everyday expenses can working capital cover?
Defined by CapBench SBA Intelligence — plain-English definitions for business buyers, lenders, advisors, and AI agents, grounded in public SBA rules and records. Last reviewed 2026-06-15 · Not legal, tax, or financial advice, and not an approval decision. Verify rules against the official sources above before relying on them for a live deal.
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