You have an offer. What is it worth to you?

The headline price is not what you keep. Enter the terms from the letter of intent to see what reaches your bank at closing, what you wait for, what depends on the buyer, and what to ask before you answer. Nothing you type leaves your browser.

This is an example offer. Type over it with yours.

The offer

For the whole business, as the letter of intent states it.

Headline price

How the price is paid

Cash at closing

Held back in escrow

months

Seller note

interest

years

Earnout

years

chance it pays

Default 50%. The buyer controls the results it is measured on.

Equity you keep in their company

Often called rollover.

Business debt paid off at closing

Loans, lines of credit, equipment leases.

The parts add up to $8,000,000 of $8,000,000.

You and the tax

Your share of the business

What kind of company is it?

Is the buyer buying the assets or the shares?

What state do you live in?

What did you pay for the business?

Price paid plus money put in. Leave blank if you started it.

How do you file taxes?

Deal fees

Banker or broker, lawyers, accountants.

The headline

$8,000,000

What it is worth to you today

$4,489,220

After tax, debt and fees. Later payments discounted at 8% a year. Earnout at 50%. $4,199,119 if the earnout pays nothing.

In Your Bank at Closing

After debt, fees and the tax this cash triggers

$3,324,018

Escrow and Note, Today's Value

$400,000 escrow over 12 months; $1,180,000 note payments over 5 years. After tax; note payments discounted at 8%.

$875,101

Earnout, Expected (50%)

50% of the $1,000,000 maximum, after tax, discounted at 8%

$290,100

Worth Today

Sum of the rows above

$4,489,220

Earnout, Maximum

At face, before tax, if every target is met

$1,000,000

Debt and Fees

−$320,000

Tax

36.4% of the proceeds, federal and state

−$2,860,860

If Every Cash Payment Arrives

Earnout in full, after tax, not discounted

$4,999,140

An estimate to take into a conversation with your CPA and deal lawyer, not tax advice. It treats all gain as capital gain and includes the 3.8% investment income tax, which owners who work in the business often do not owe.

Worth to you today

$4,489,220

$3,324,018 in your bank at closing

See the breakdown

Before you answer the buyer

Who controls the numbers the $1,000,000 earnout is measured on?
After closing the buyer runs the business, sets the budget and keeps the books. If none of the earnout pays, this offer is worth $4,199,119 to you today, after tax.
Ask them
- What exactly is measured, and under whose accounting?
- What happens to the earnout if you merge the business, cut its budget, or let me go?
- If year one misses, can year two catch up?
- Does the earnout pay in full if you sell the company?
You are lending the buyer $1,000,000.
You get it back over 5 years if the business keeps paying. The interest is taxed as ordinary income, at a higher rate than the sale.
Ask them
- What secures the note, and what happens if a payment is missed?
- Is the note behind your bank loan, and can the bank stop my payments?
- Will anyone personally guarantee it?
$400,000 is held back for 12 months.
Escrow pays the buyer for problems found after closing. What it covers, and what you owe beyond it, matter as much as the amount.
Ask them
- What claims can be paid out of escrow, and is there a cap beyond it?
- Would representations and warranties insurance replace most of the escrow?
Is the price cash-free and debt-free?
Most offers are. If so, every loan, line of credit and equipment lease the business owes is paid off out of your check at closing. Enter that debt above to see what is left.
Ask them
- Which of our debts and leases do you count as debt?
How is the working capital target set?
Offers assume the business is handed over with a normal level of receivables, inventory and payables. If the target is set high, the price drops at closing, dollar for dollar.
Ask them
- What is the working capital target, and how did you compute it?
What are they paying you to stay?
Salary or consulting fees after closing are taxed as ordinary income and are not part of the price. Moving price into a consulting agreement raises your tax.
Ask them
- How long do you need me after closing, in what role, and for what pay?
How will the price be split across the assets?
In an asset sale, the part of the price assigned to equipment and other depreciated assets is taxed as ordinary income, not capital gain. This check treats all of it as capital gain, so the tax here may be low if you own a lot of equipment.
Ask them
- What purchase price allocation are you proposing?

Is $8,000,000 a fair price for your business?

Exit OSx values your business from your own numbers, shows what this type of buyer will look for in diligence, and puts this offer next to what the business is worth. Your offer carries over when you sign up.

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