Valuation
What is the difference between enterprise value and the amount I receive at closing?
The line-by-line bridge from the headline price in an offer to the money actually wired to you on closing day.
By Michael D. Rubin, CEO & Founder · September 2026 · 953 words
Enterprise value is the price for the whole operating business before debt, cash and deal terms are settled; the amount wired to you at closing is what is left after the company's debt is paid off, working capital is adjusted, and any money that is held back or paid later is set aside. On most deals the two numbers differ, sometimes by a lot, and the gap is predictable if you know where to look.
This article walks the bridge from one number to the other, before taxes. What you keep after taxes is a separate calculation your CPA runs on the result.
What enterprise value means
When a buyer says it will pay six times EBITDA (earnings before interest, taxes, depreciation and amortization), it is describing enterprise value: the price for the business as a going concern, as if it had no debt and no extra cash. Most private company offers are quoted this way, on a cash-free, debt-free basis. The seller keeps the excess cash in the bank accounts and pays off the company's debt out of the proceeds, and the buyer receives a company with a normal level of working capital to run on.
Enterprise value minus debt, plus excess cash, is sometimes called equity value: the value of your ownership itself. Equity value is closer to what you receive, but it is still not the wire, because deal terms decide how much of it arrives on closing day and how much comes later, if at all.
Enterprise value is the right number for comparing offers on price. It is the wrong number to plan your retirement around.
The bridge from headline price to wire
| Line | Effect on your closing wire | What it is |
|---|---|---|
| Enterprise value | Starting point | The agreed price for the operating business |
| Company debt | Subtract | Bank loans, lines of credit and equipment notes paid off at closing |
| Excess cash | Keep | On a cash-free deal, cash above an agreed level stays with you |
| Working capital adjustment | Add or subtract | The difference between actual working capital at closing and the agreed target, called the peg |
| Escrow or holdback | Paid later, if no claims | Part of the price held for a set period to cover claims against you |
| Seller note | Paid later, over time | Part of the price you lend to the buyer, repaid with interest |
| Earnout | Paid later, if targets are met | Part of the price that depends on results after closing |
| Rollover equity | Not cash | Part of the price taken as ownership in the buyer's company |
| Transaction costs | Subtract | Advisor success fee, attorney and CPA fees and other closing costs |
A worked illustration
Suppose a buyer agrees to an enterprise value of $10 million. The company owes $1.2 million on an equipment loan and a line of credit. Working capital at closing comes in $150,000 below the peg. The purchase agreement holds $750,000 in escrow for a period after closing, and $1 million of the price is a seller note repaid over five years.
The arithmetic: $10,000,000 minus $1,200,000 of debt, minus $150,000 of working capital shortfall, minus $750,000 held in escrow, minus $1,000,000 in the seller note, leaves $6,900,000 at closing, before transaction costs and before taxes. Another $1.75 million is still yours, but it arrives later and carries some risk. Nothing in this example is unusual. It only hurts when it comes as a surprise. Change any one input, such as a bigger escrow or a peg set on a busy season, and the closing wire moves by the same amount, even though the headline price never changed.
Which parts of the gap you can negotiate
- Debt: fixed. It is owed either way, and paying it down with company cash before a cash-free, debt-free sale simply moves money from one pocket to another.
- Definition of debt: read it closely. Some buyers try to treat items such as customer deposits, deferred revenue or accrued bonuses as debt, which lowers your proceeds.
- Working capital peg: negotiable, and often worth real money. It should reflect a fair average of recent months, not a seasonal peak.
- Escrow size and length: negotiable. Clean records and accurate disclosures support a smaller, shorter holdback.
- Seller note and earnout: negotiable, and the most important to compare between offers. Cash at closing is worth more than the same amount promised later.
Why the bridge matters before you choose an offer
Two offers with the same enterprise value can put very different amounts in your account. One may pay nearly all cash at closing with a modest escrow; another may rely on a large earnout that depends on results after you have given up control of the company. The article on how to compare offers shows how to line them up side by side, and what is my business worth explains where the enterprise value itself comes from.
It also helps to know the bridge before you start, not after an offer arrives. If you owe $1.2 million and need $8 million in cash to retire, you are looking for a price well above $9.2 million once escrow, fees and taxes are counted.
How we handle it at MDR & Associates
Part of our sell-side work is building this bridge for your company early: the debt to be paid off, a realistic working capital target, and the kinds of structure buyers propose at your size and in your industry. When letters of intent arrive, we present each one to you in person and translate it into cash at closing, money paid later and money at risk. Your transaction attorney and CPA work alongside us on the documents and the tax side. To find out where your company's enterprise value might start, request a free valuation snapshot.
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