Business sale offers can include payments that arrive years after closing. Some depend on the company's future results, while others require the seller to accept payments over time. That makes the payment terms part of the price comparison from the start.
Michael's background in operations and business brokerage informs how he evaluates those terms. An owner needs to understand how much money will arrive at closing and what could prevent the rest from being paid.
Choosing a buyer also takes time away from running the business. Before setting aside other conversations, the seller needs enough information to judge whether the proposed deal fits their plans.
Separate money at closing from later payments
An offer's total price may combine several kinds of payment. Put the amount payable at closing on its own line, then record each later payment separately.
A seller note means the buyer owes the seller money and will pay it over time. An earnout makes part of the price depend on agreed future business results. A holdback keeps some money aside to cover possible claims. Each arrangement gives the seller a different reason to wait and a different risk of receiving less than expected.
For every later payment, establish when it becomes due and what could reduce it. Ask what protection the seller has if the buyer fails to pay. With an earnout, the calculation needs to be clear enough that both parties can work from the same records and reach the same answer.
Check what each buyer is purchasing
Two buyers may offer different prices because they expect to receive different assets. One offer might include real estate while another leaves it with the seller. The comparison needs to account for that difference before the prices mean much.
Check the treatment of inventory and equipment. Then confirm whether receivables and cash stay with the business. Deposits may need separate attention, depending on the transaction. Identify the liabilities the buyer would take over and those the seller would still owe.
Working capital is the money and other short-term resources available to cover everyday business needs, after short-term obligations are considered. If the buyer expects a set amount to remain at closing, both parties need an agreed definition and calculation. Otherwise, they could agree on a price while expecting different amounts of money to change hands.
Understand how the buyer will close
A buyer who needs financing still has a funding condition to resolve. Ask how the purchase will be funded and which approvals remain. The seller should understand how far that process has progressed before relying on a proposed closing date.
The buyer's review of the business, often called due diligence, also creates conditions. Buyers examine records to confirm what they have been told and decide whether to proceed. Ask what they need to verify and what findings could lead them to seek a lower price or withdraw.
Some questions won't be settled when an offer arrives. Record them as open issues rather than assuming they will be resolved in the seller's favor. A broad right to revisit the price deserves more attention than a specific question with a clear way to answer it.
Put a scope on the seller's remaining work
A buyer may ask the owner to stay after closing to help with the transition. That request affects an owner who plans to leave daily operations, even if the purchase price meets expectations.
Agree on the work and how long it will last. Compensation should be clear, along with how much availability the buyer expects. If the seller will remain in a management role, define which decisions they can make. A general promise to help leaves too much room for disagreement over the seller's time.
An earnout adds another concern when the buyer controls operations. The seller needs access to the records used to calculate payment and an understanding of how the buyer's decisions could affect those results. Those terms belong in the discussion before the seller accepts a payment tied to future performance.
Write the offers side by side
A comparison sheet gives the owner a place to record terms without relying on memory. Use a column for each buyer and separate rows for the price and the amount due at closing. Add rows for deferred payments and the conditions attached to them.
Continue with the assets included and any liabilities retained. Record financing requirements, the buyer's review conditions, and the seller's work after closing. Mark each entry as agreed or still open. If an offer leaves something out, write that down rather than filling the gap with an assumption.
Keep the owner's priorities beside the comparison. An owner who needs money at closing will weigh deferred payments differently from someone willing to wait. Someone planning to retire may place more weight on a firm end date for transition work. These differences help explain why the highest stated price may not be the best fit.
Clarify terms before signing
A letter of intent records the proposed deal terms before the final purchase agreement. Some provisions can be binding, so transaction counsel should review it before the seller signs, especially any promise to stop talking with other buyers or keep information confidential.
An accountant or tax adviser can assess how the deal's structure affects taxes and the amount the seller keeps. Give that adviser the payment terms as well as the stated price so the review reflects when the money would actually arrive.
Before committing to a buyer, send back the open questions that could change the decision. Ask for written clarification of any payment condition or continuing obligation that remains unclear.