Deal process
How to compare offers: all-cash, seller financing, earnouts and what you actually keep
Why the highest headline number is often not the best offer, and how to work out what each one really pays you
By Michael D. Rubin, CEO & Founder · September 2026 · 1,649 words
The highest headline number is the best offer roughly half the time. Between the price written in a letter of intent and the money that reaches your account sit debt repayment, a working capital adjustment, an escrow holdback, any earnout or seller note, transaction costs and tax. Two offers with the same headline can differ by a quarter or more in what you keep.
This article sets out how to convert an offer into the number that matters — cash at closing, plus what is genuinely likely to follow — and what each common structure is really worth.
Enterprise value is not your proceeds
The number in the letter of intent is usually enterprise value: the value of the business itself, before its debt and cash are settled. Nearly every transaction is agreed on a cash-free, debt-free basis, meaning you pay off the debt and keep the surplus cash.
From there, subtract the working capital adjustment if you are below target, the escrow or holdback, and your transaction costs. What remains is cash at closing. Anything deferred is not proceeds yet — it is a claim.
That is an illustration, not a market quote — but the shape of it is what we see repeatedly. The lower offer paid $1.45 million more on the day. The higher one might eventually pay more, if the earnout is achieved in full, which brings us to the structures themselves.
| Line | Offer A | Offer B |
|---|---|---|
| Headline enterprise value | $10,000,000 | $9,000,000 |
| Debt repaid at closing | −$1,200,000 | −$1,200,000 |
| Working capital adjustment | −$400,000 | $0 (target agreed at actual) |
| Escrow held 18 months | −$1,000,000 (10%) | −$450,000 (5%) |
| Seller note / earnout | −$2,000,000 (earnout, 3 years) | −$500,000 (note, 2 years) |
| Cash at closing | $5,400,000 | $6,850,000 |
All cash at closing
The simplest and, dollar for dollar, the most valuable. There is no collection risk and no dependence on how the business performs once you are gone.
All-cash offers are usually somewhat lower in headline terms, and they should be. A dollar today with no conditions is worth more than a dollar in three years contingent on someone else's management.
Seller financing (a seller note)
You lend part of the purchase price to the buyer and they repay it over time, with interest, usually over two to five years. It is common, it is often what makes a transaction possible, and it can raise the total you receive.
It also means you are a creditor of a business you no longer control. Before agreeing to one, ask: what security is there, where does the note sit relative to the bank's debt (almost always behind it), what are the default remedies, and can the note be offset against a warranty claim? That last provision is the one sellers most often miss.
As a rule of thumb, discount a seller note by the risk you would apply to any unsecured loan to a business you cannot see inside. If that makes the offer unattractive, it was never as high as it looked.
Earnouts
Part of the price is paid later, only if the business hits agreed targets. Earnouts exist because the buyer and seller disagree about the future, and they resolve that disagreement by deferring it.
In our experience a substantial share of earnouts pay less than the seller expected — usually not through bad faith, but because the buyer changes how the business is run, and the metric was written against the old way. If you accept one, insist on:
- A revenue or gross profit metric, not net profit. Net profit is the easiest number for a new owner to alter, entirely legitimately, through overhead allocation.
- Written protections on how the business is run during the earnout period — sales staffing, pricing authority, no merging of your accounts into theirs without adjustment.
- Your right to see the numbers, in a defined format, on a defined schedule, with the right to have them examined.
- A short period. Two years beats five. The further out, the less resemblance the business bears to the one you sold.
- A floor — a minimum payable regardless — if you can negotiate one.
Escrow and holdbacks
A portion of the price, commonly 5% to 15%, is held for 12 to 24 months to cover any breach of your representations and warranties.
Escrow is normal and not something to resist on principle. What is worth negotiating is the amount, the period, whether it is your sole liability (a cap), and how a claim is made. An offer with a 5% escrow for twelve months is materially better than the same offer with 15% for two years, and buyers rarely present it that way.
Working capital: the adjustment that surprises people
You are normally required to leave a 'normal' level of working capital in the business. If you are below the agreed target at closing, the price is reduced dollar for dollar. If above, you may be paid the difference — though buyers push back on that side more often than they do on the first.
Agree the definition, the calculation method and the target in the letter of intent. A twelve-month average of the actual balance is common and defensible. Leaving this to the purchase agreement is how a seven-figure surprise appears in the last fortnight. It is also one of the six things that most often derails a deal — see what causes sales to fall apart in due diligence.
The things that are not money
Sellers rarely rank these highly at the start and often rank them highest afterwards: what happens to the employees, whether the name survives, how long you are expected to stay, what non-compete you are signing and for how wide an area, and whether the buyer will actually be able to close.
A buyer's ability to close is worth pricing. A funded strategic acquirer at $9 million is generally worth more than an unfunded individual at $10.5 million, because the second offer has a real chance of costing you six months and your negotiating position.
A comparison worth doing on paper
- Convert every offer to cash at closing, after debt, working capital, escrow and costs
- Value deferred consideration at what you would actually pay for that promise, not at face
- Model the tax on each structure with your CPA — asset and equity sales differ substantially
- Score the buyer's certainty of closing: funding, experience, references from previous sellers
- Then, and only then, look at the headline
This is the analysis we do with a client before any offer is accepted, and it is why our process is built to produce multiple letters of intent at the same time rather than one at a time. Competition is what makes the comparison worth having.
Asset sale or equity sale — the difference in what you keep
This is a tax question with a price attached, and it is worth raising before offers arrive rather than after.
In an asset sale the buyer purchases the assets and assumes selected liabilities. Buyers usually prefer it: they get a stepped-up basis to depreciate and they leave unknown liabilities behind. Sellers usually receive less after tax, because part of the price can be taxed as ordinary income rather than capital gain.
In an equity sale the buyer purchases the ownership interests and takes the company as it stands, liabilities included. Sellers usually prefer it; buyers price the risk they are inheriting.
The gap between the two, after tax, is frequently 5% to 15% of the proceeds. Model both with your CPA before you negotiate, because a buyer who agrees to an equity sale will want something for it — and you should know what that concession is worth to you.
The clauses that decide what you keep
| Clause | What to look for | What it is worth |
|---|---|---|
| Escrow / holdback | Percentage, period, and whether it caps your liability | 5% for 12 months versus 15% for 24 is a large difference in real money |
| Representations and warranties | How wide, how long they survive, and whether a cap and basket apply | An uncapped rep is an open-ended liability after you have spent the proceeds |
| Working capital | Definition, calculation, target, and the true-up mechanism | Routinely a six-figure item; agree it in the letter of intent |
| Non-compete | Geography, duration, and what activity it actually covers | Too wide a clause can prevent the next thing you wanted to do |
| Transition / employment | How long, on what terms, reporting to whom | Sellers underestimate how different it feels to work for the buyer |
| Earnout protections | Metric, control provisions, reporting, floor | Decides whether the deferred money is real |
A question worth asking every buyer
"Walk me through the last transaction you closed. What changed between the letter of intent and the closing, and why?"
The answer tells you more than any reference. A buyer who says nothing changed is either unusually disciplined or not telling you the whole story. A buyer who explains a genuine adjustment, and what caused it, is a buyer you can work with.
Then actually call a seller they have bought from. Two questions: did the price move after the letter of intent, and would you do it again.
Certainty is part of the price
A funded strategic acquirer at $9 million and an unfunded individual at $10.5 million are not two offers of the same kind. The second carries a real probability of consuming six months, exhausting your exclusivity, and returning you to the market with a story attached.
Weigh three things before the headline: how the purchase is funded and whether that funding is committed; what the buyer has closed before; and how many conditions still sit between the letter of intent and completion.
This is the analysis we run with a client before any offer is accepted, and it is why our process is built to produce several letters of intent at the same time. Without alternatives, comparison is theoretical.