Buying a business
Negotiating the Price Gap Between Buyers and Sellers
Deal structures that close the distance between what a seller asks and what a buyer will pay, and the risk each one carries.
By Michael D. Rubin, CEO & Founder · Updated September 2026 · 774 words
When a buyer and seller agree on everything except price, the gap can often be closed by changing how and when the money is paid rather than how much. Deferred payments, payments tied to future results, leasing the real estate instead of selling it, buying the company in stages, and removing assets from the deal all let each side walk away feeling the result was fair.
Each tool shifts risk from one side to the other. The skill lies in choosing the one that matches the real reason for the disagreement, so the structure answers the question the parties are actually arguing about.
Why the gap usually exists
Most price gaps come from different views of the future. The seller prices in a new product line, a large contract just signed, or growth expected to continue. The buyer prices only what has already happened and worries about losing customers once the owner leaves. Neither view is unreasonable. Structure lets the final price depend on which one turns out to be right.
Sellers also tend to want all cash at closing, which is understandable. But a buyer can often pay more in total if part of it is paid later, because deferral protects the buyer if the business turns out to be weaker than it was presented. An owner who insists on all cash may be choosing a lower price without realizing it.
Tools that bridge a price gap
| Tool | How it closes the gap | Main risk for the seller |
|---|---|---|
| Seller note | Part of the price is paid over time, with interest, after closing | The buyer's ability to keep paying |
| Earnout | Extra payments if the business reaches agreed targets after closing | Results depend on how the buyer runs the company |
| Real estate leaseback | The seller keeps the building and leases it to the buyer, lowering the price | Rent depends on the tenant's success |
| Staged purchase | The buyer acquires a majority now and the rest later on a set formula | A minority position until the final purchase |
| Royalty | Payments tied to revenue or margin for a fixed period | Definitions and reporting must be precise |
| Asset carve-out | Vehicles, non-core property or other assets stay with the seller | Few; the price falls with the assets removed |
When an earnout makes sense, and when it does not
Sellers often resist earnouts, and with reason. They carried the business risk while they owned the company and do not want to carry it again under someone else's management, especially when the buyer controls spending, staffing and pricing after closing.
Earnouts work best when a specific, measurable event is genuinely uncertain: a product launched after years of development, a major contract awaiting renewal, a new location still ramping up. The established business is priced on its record, and the earnout pays for the new piece if and when it produces. Before agreeing to one, a seller should read about whether to accept an earnout.
Using the real estate and the equity
If the seller owns the building, taking it out of the deal and signing a lease can reduce the price by the property's value and make the purchase easier to finance. A buyer may even accept a somewhat higher rent in return for a lower price. This guide on whether real estate belongs in the sale price sets out the trade-offs.
Staged purchases work differently. A buyer might acquire a majority now, with the right to buy the remainder over a few years at a price set by an agreed formula. The seller keeps a share of profits in the meantime and can negotiate a put, the right to require the buyer to purchase the remaining shares on schedule. Royalties and carve-outs are simpler still: a payment stream tied to revenue, or assets such as vehicles and unrelated property left out of the sale entirely.
Keeping the structure honest
Every structure needs clear definitions: how earnings are measured, which accounting rules apply, who controls spending, what security backs a note, and what happens if the company is sold again before the payments end. Vague terms turn a bridge into a dispute. Both sides' transaction attorneys should draft these provisions with care, and each side's CPA should model the payments under good years and bad ones before anyone signs.
How we bridge gaps in practice
MDR & Associates negotiates multiple letters of intent at the same time where it can, so competition often narrows the gap before structure is needed at all. When it does not, we arrange SBA, conventional and seller-financed structures through business financing to fit both sides. If a price gap is holding up a deal, talk to us.
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Questions owners ask next
Is a seller note secured?
It can be, and sellers should ask for security. A note may be backed by the business assets or a personal guarantee, though it usually ranks behind the bank loan. When an SBA or bank lender is involved, it normally sets conditions on the seller note, including when payments may begin. Your attorney drafts the terms.
How long do earnouts usually run?
Long enough for the uncertain event to play out, and no longer. A longer earnout exposes the seller to more decisions made by the new owner, while a very short one may not capture the value in dispute. The right length follows from what is being measured, not from a standard formula.