Why the Highest Offer Is Not Always the Best Offer
A $4M offer with $2M at close, a 2-year earnout, and aggressive contingencies may net you less than a $3.2M all-cash offer. The headline number is marketing. What matters is what you actually receive, when you receive it, and what strings are attached.
According to the American Bar Association, approximately 30% of business sale earnouts do not pay out in full. So that $4M offer with $2M in earnouts may really be a $2.8M deal. You need to evaluate every offer on its complete terms, not just the top-line price.
The 7 Factors to Compare in Every Business Offer
Cash at Close
This is the only guaranteed money. Everything else -- earnouts, seller financing, escrow -- carries risk. A $3M offer with $2.5M at close beats a $3.5M offer with $1.5M at close for most sellers.
Seller Financing Terms
Many deals include seller financing (10-30% of price). Evaluate the interest rate, term, security (what collateral backs the note), and conditions under which the buyer can default. A poorly structured seller note is essentially an unsecured loan to a stranger running your former business.
Earnout Structure
Earnouts tie a portion of the price to future performance. If you accept an earnout, insist on objective triggers (revenue, not profit -- profit is easier to manipulate), a short measurement period (12-18 months), and protections against the buyer changing operations in ways that tank your payout.
Contingencies and Due Diligence Scope
Fewer contingencies mean a more certain deal. Watch for broad 'satisfactory due diligence' clauses that give the buyer unlimited reasons to retrade or walk. Push for specific, time-bound contingencies with defined resolution paths.
Transition Requirements
How long must you stay? What are your hours and responsibilities? Is your compensation fair? A 12-month full-time transition requirement is very different from a 3-month part-time consulting arrangement.
Employee and Customer Treatment
If protecting your employees matters, evaluate each buyer's stated plans for staffing, compensation, and culture. Negotiate retention provisions directly into the purchase agreement. Also assess whether the buyer will maintain customer relationships or consolidate/restructure.
Buyer Capability and Financing
Can the buyer actually close? Verify proof of funds, SBA pre-approval, or committed equity. A great offer from a buyer who can't get financing is worthless. The most reliable deals come from buyers who have their capital lined up before making an offer.
Real Example: Comparing Two Metro Detroit Offers
A Metro Detroit distribution company received two offers. Here's how they compared.
Offer A: $3.8M (PE Firm)
- Cash at close: $2.2M
- Seller note: $800K (5-year, 6%)
- Earnout: $800K over 2 years
- Transition: 18 months full-time
- Employee plan: restructure within 6 months
Offer B: $3.2M (Strategic Buyer)
- Cash at close: $2.8M
- Seller note: $400K (3-year, 5%)
- Earnout: None
- Transition: 6 months part-time
- Employee plan: retain all staff, add resources
The owner chose Offer B. Despite the lower headline price, it provided more guaranteed cash, less risk, a shorter transition, and better protection for employees. The risk-adjusted value of Offer B was actually higher.
Ready to Create Competitive Tension?
The best way to get strong offers is to present a well-prepared, well-valued business to multiple qualified buyers. Talk to an advisor about your sale strategy.
Comparing Offers FAQ
How many offers should I try to get?+
Aim for 2-4 qualified offers. This creates competitive tension without becoming unmanageable. More than 4-5 active offers can slow the process and create buyer fatigue. Quality matters more than quantity: one strategic buyer and two financial buyers is a strong position.
Should I accept an offer with an earnout?+
Earnouts can be appropriate when there's a gap between seller expectations and buyer risk tolerance. However, only about 60% of earnouts pay out in full according to industry studies. If you accept an earnout, negotiate clear, objective triggers (revenue milestones rather than subjective metrics), a reasonable measurement period, and protections against buyer manipulation.
What is a retrade and how do I prevent it?+
A retrade is when the buyer lowers the price after signing the LOI, usually during due diligence. They find (or claim to find) issues that justify a lower price. Prevent retrades by having clean, complete financials, disclosing known issues upfront, and negotiating a deposit that the buyer forfeits if they retrade without cause.
How important is the buyer's financing?+
Extremely important. An all-cash buyer with proof of funds is far more reliable than a buyer who still needs to secure financing. Ask for proof of funds or a pre-approval letter from an SBA lender. Deals fall apart most often during the financing stage, so buyer financial capability should be a top evaluation criterion.
Ready to Take the Next Step?
Find out how ready you are or talk to an advisor about your options.