How to Compare Two Business Sale Offers When One Is Not All Cash

A seller can hold two offers and still not know which one pays more. One buyer names a price and plans to wire nearly all of it at closing. The other names a larger price and fills the gap with a seller note, an earn-out, a holdback, rollover equity, or a mix of those. The larger number looks like the win. It is the win only if you are likely to collect it, on terms you can live with, from a buyer who can close.

The short answer: compare cash at closing, then what you are likely to collect later, then what you give up to collect it. A wire, a note, an earn-out, and equity in a company you will no longer control are four different things. Keep the headlines in their own column.

At Bridge Point Business Brokers, we build that page before an owner grants exclusivity. If you are still deciding whether to go to market, start with a confidential business valuation, the seller overview, or sell your business. If two buyers are already in front of you, M&A advisory is the conversation about which terms to keep.

This article is not legal, tax, or lending advice. A note, an earn-out, a holdback, rollover, working capital, and the tax on your proceeds are fact-specific. Your lawyer, your CPA, and anyone lending into the deal still have to review the documents. Nothing here is a quote for your company, a discount rate, or a prediction of what a buyer will pay.

Three Numbers, and Only One of Them Is Cash

Every offer carries at least three figures. Owners usually negotiate the first one.

Headline price is the number in the subject line of the letter of intent. It is a label. It can include cash, a note, an earn-out, a holdback, and equity you roll into the buyer's company.

Cash at closing is the wire, after the adjustments the letter already names. Debt that must be paid off, a working-capital target, an escrow, and transaction expenses can all move that wire while the headline stays put. Two offers with the same headline can produce different checks on signing day.

What you are likely to collect is your estimate of the rest: the note only if you believe you will be paid, the earn-out only to the extent you would underwrite it, and rollover left out of the cash column. The headline skips that judgment.

Price and exclusivity sit in the same letter. How that letter works when the check is large is the letter of intent: price, exclusivity, and the terms that get missed. Read the pages after the price on a smaller company too.

An illustration, not a valuation

These round figures are an illustration. They are not a valuation, a market multiple, or a recommendation.

Offer B wins the subject line by a million dollars. Offer A puts a million more in your account the day you close. The rest of Offer B is a promise. Until you price it, you have one check and a story about a larger check. A small escrow on an otherwise cash deal is still mostly a wire. The offer to watch is the one whose extra million lives in the note and the earn-out. The same pair shows up for a distributor in Ohio, a contractor in Florida, and a manufacturer in Texas.

A Seller Note Is a Loan You Are Making

A seller note means you are financing the buyer. The face amount is what the paper says they owe. Write a lower figure beside it when you compare offers, unless you would truly trade that much cash for the note this week. How notes are built, and when one helps a deal close, is seller financing: structures, risks, and when it makes sense.

Rate, term, and security

The rate is what they pay for the use of your money. The term is how long you wait. Interest-only, then a balloon that depends on their next lender, is a different instrument from a note that amortizes every month. A long wait and a low rate reduce what you would take instead of cash. This article will not name a universal haircut. Your number is the cash you would accept for this buyer, this rate, and this security.

Security is what you can reach if they stop paying. A lien on the business and a guarantee from someone with assets outside the company is a different risk from a signature. Many acquisition loans put the bank ahead of you. The bank is paid first, and covenants you did not write can block your payments while the company is still open. Read the subordination agreement with the note. A freeze when a covenant slips is a term. Price it as one.

If they miss a payment

A missed payment does not hand the company back on Friday. You give notice, you may accelerate, and you may chase the guarantee or the collateral. A senior lender may have to consent, and counsel is paid the whole way. The company may also be thinner than the one you ran. People say "we can take it back" before they read the intercreditor terms. Afterward, the path is often slow or blocked. Count a note you would hate to enforce with caution, whatever the face says.

Cash at closing can pay tax or retire your own debt. A note pays later, only if the buyer can pay, only in the order the documents allow. In the illustration, $1.5 million does not drop into the cash column. The owner writes what they would take today for that promise.

On a smaller deal, a lender often expects the seller to carry part of the price because a program loan has a ceiling. On a larger one, a fund or a bank may leave the same kind of gap. How buyers fill a check a single program cannot cover is how buyers finance an acquisition when SBA cannot cover the check. Buyers combining an SBA loan with other money can start with SBA loans and additional financing options. Once you hold the note, their stack is your credit decision. A buyer still borrowing the down payment is a weaker credit than a buyer writing a real equity check.

Earn-Outs and Holdbacks Are Delayed for Different Reasons

Both arrive after closing, and a large one should be discounted hard when you line offers up. The longer map is earn-outs, holdbacks, and contingent payments.

Who measures, and what gets disputed

An earn-out pays if the business hits a target after you sell: revenue, gross profit, or a retained customer. The buyer usually runs the company during that period and chooses spending, staffing, and pricing. Staying so you might collect means you are still working for a bonus they can influence. Leaving means you are guessing about a company you will not manage.

Count only what you would underwrite. When you do not control the target, that is often a modest fraction of the headline earn-out. The fraction is your judgment. This article will not quote one.

Profit targets miss more easily than revenue targets, because salaries, a management fee, and new overhead can absorb the profit. Disputes show up as changed revenue recognition, overhead pushed onto your old division, or a lost salesperson blamed on the past. A cleaner earn-out names the metric, freezes the accounting at closing, sends monthly numbers, and lets a third party break a tie. A vague profit earn-out stays out of the cash column.

Holdbacks

A holdback, often in escrow, covers indemnities such as a customer claim, a tax issue, or a broken representation. You may receive it on a schedule if nothing is claimed, and you may lose some of it if a claim is real. It sits closer to cash than an earn-out because growth is not required. It is still missing from the closing wire.

Count a large escrow below face unless the cap and the survival period make collection likely. A small escrow on an otherwise cash deal is ordinary. An escrow that is a quarter of the price is a second negotiation. In the illustration, the $500,000 earn-out is not added to the $3 million wire. Write the slice you would underwrite, or write zero and treat any payment as upside.

Rollover Equity Means You Are Still an Owner

A sponsor or a strategic buyer may ask you to roll part of the price into equity of the new company. The headline rises. Cash at closing falls by the same amount. You remain an owner, usually a minority owner, in a company whose board, debt, and sale date belong to someone else.

What that later check depends on is rollover equity and the second bite. On the comparison page, rollover is not cash. The later sale can disappoint, new debt can consume the equity, and you can be dragged along on terms you would not have picked. You do not time the exit, distributions may never come, and later investors can dilute you. If Offer B hid $500,000 of rollover inside the $5 million headline, that slice is zero in the cash column. Keep a side note that says "possible later proceeds, amount unknown."

Buyers ask for a roll more often when the company still runs through the founder. Why large buyers walk from a founder-run company is the test behind that request. A roll can be a fair share of a business you mean to keep building, or a way to push risk back onto someone who wanted to leave. Before you assign it any hope, ask what class of equity you receive, whether you share a sale the way they do, whether they can issue more equity or charge fees ahead of you, and what you receive if they sell for less than they paid.

Working Capital, Debt, and the Check Behind the Price

The same headline can still produce two different wires. The price is not the settlement statement.

Debt. On a cash-free, debt-free offer, your bank loan is paid at closing, usually from proceeds. A $4 million offer that must retire $700,000 of debt does not put $4 million in your pocket. In the illustration, if Offer B also requires you to pay a $400,000 line out of the $3 million wire, cash at closing is $2.6 million before you have judged the note. Ask each buyer, in writing, who pays the debt and whether it sits inside the price.

Working capital. The company needs a normal level of receivables, inventory, and cash, net of payables, on the Monday after closing. Come in short and the price drops. Come in over and you may be paid for the extra. Sweeping cash the week before closing shrinks your own wire. A twelve-month target and a three-month target diverge in a seasonal business. A Florida contractor with a busy winter and an Ohio distributor with a busy fall can both be surprised by the wrong months. Both letters have to name the target the same way.

Structure, fees, and escrow. An asset sale and a stock sale move liabilities and taxes differently. Your CPA models that. You can still refuse to rank the headlines until each buyer says whether they are buying assets or equity, and which payables stay with you. Fees and escrow then come off what you keep. A higher headline with a fatter escrow can lose to a lower one that wires more of itself.

What remains, after those items and after tax, is what owners mean by what they keep. The walk-through on a larger check is what you actually keep when you sell. The same lines appear on a smaller closing statement. Net proceeds pay for the next part of your life.

Line the Two Offers Up on One Page

Use one page and your own numbers. The table continues the illustration. It is one owner's cautious reading, not a formula and not a market quote. Change the counted figures and the ranking can flip.

Here, cash at closing counts in full. The subordinated note counts below face, at $1 million of the $1.5 million, because that is what this owner would lend. A stronger guarantee might justify more. The earn-out counts at $150,000 of the $500,000, because the buyer controls spending. That pair of figures is a made-up judgment, not a published rate. Someone running the company under a frozen definition might count more. Someone leaving might count none. Rollover stays at zero cash. The job, the noncompete, and the transition are written in words, because time is part of the price.

On this reading, the million-dollar headline advantage shrinks to a thin gap, and the owner works two more years to chase it. Another owner could count the note and the earn-out higher and choose differently. The page works when the headline stops deciding by itself.

What you give up besides the check

A wide noncompete has a cost if you might work again. A two-year stay has a cost if you sold in order to leave. So does a deal that lets them end your job and keep the noncompete. An offer slightly ahead on the cautious total can still be the worse life if it costs you two years. If a partner or a spouse must sign, put both of you on the page before exclusivity. A personal guarantee or a lease you must keep signing belongs there too. Those are economic terms even when the subject line never mentions them.

When the Lower All-Cash Offer Is the Better Deal

The lower all-cash offer is often the better deal once the page is honest.

You need the wire. In the illustration, Offer A pays $4 million now and Offer B pays $3 million now. Personal debt, a partner buyout, or a simple wish to be finished does not get funded by a headline. Later payments might miss the date you care about.

The extra price is mostly contingent. An earn-out you do not control, or a note behind a bank with a thin guarantee, is a request to hope. Hope can sit on the page. It should not be added at face and declared the winner.

The bigger buyer is the weaker credit. A large price that still needs a loan, a partner, and your note is a stack of conditions. A smaller price from someone who can wire funds is a sale. If the note or the earn-out works only because you keep running the company, you have been offered a job and a delayed bonus.

You would not make the loan. If you would refuse this buyer and these terms as a lender, refuse them as a seller. And "all cash" still has to be cash. A financing contingency, an unsigned partner, or funds nobody has seen is a plan to find money. Compare it as a plan until someone verifies the account.

A clean offer can also simply be too low. A business valuation is how you learn whether the cash buyer is a fair exit. Certainty has value. If a credible structured buyer is in hand and the cash offer sits far under what informed buyers would wire, you can pass on the cash without treating the other headline as money.

When the Structured Offer Is Worth Taking

Structure earns its place when the paper is secure and the buyer is the one you want in the company.

The wire is already enough, and the note is one you understand. If both offers clear the cash you need, a note you would hold is extra. The illustration is harder because Offer B pays less at the close. Shift it so Offer B pays $4 million at close plus a secured note, and that can beat a smaller all-cash wire. You have met the guarantor, you know the lien, and the payment fits ordinary cash flow. A guaranteed note is a different asset from a promise stuck behind a bank.

The earn-out is modest, and the buyer is stronger. A revenue target with locked policies and information rights can be real upside. A large earn-out that supplies most of the gap still gets discounted hard. Committed capital and no open financing contingency make the page easier to accept, because they are more likely to close and to be there when a payment is due. Who should compare the offers with you is who should run the process. A roll and a stay fit when you mean to keep building and you accept a later sale you do not time. They fit poorly when you showed up to leave. The structured offer should win on the page, after your own haircuts, because the buyer and the documents are sound.

What to Ask Before You Pick One

Choosing usually means exclusivity: you stop talking to the other buyer for a while. Ask these questions first. Your lawyer and your tax advisor still review the letter. This list is not that review.

Exclusivity and financing. How many days does the exclusive last, and can you leave if they cut the price or if the loan is still open? If they must obtain financing before they are bound, the cash is conditional. Ask what is committed, by whom, and what happens if the loan shrinks.

Who verified the cash. A bank letter and a recent statement on money they can use at closing are the minimum. A relative, an uncommitted fund, or a brokerage account they still must sell is not a wire. Ask who looked, and on what date.

The economics, in writing. Debt, the working-capital target, escrow, holdback, and fees. On a note: rate, term, security, guarantees, subordination, and what you can do if a payment is missed. On an earn-out: the metric, who calculates it, which rules stay frozen, and what happens if they end your job. On rollover: the class of equity, dilution, and whether you can be forced into a later sale. On the job: pay, time, and how far the noncompete reaches.

Quiet while you compare. Two live offers leak through a note to a manager or a customer. How to sell your company confidentially is the discipline. After you sign, the questions get specific, which is a seller's guide to due diligence.

Then ask counsel which promises can be enforced, and ask your CPA how cash, a note, an earn-out, and rollover are taxed in the year of sale and later. Look at the one-page comparison again. The offer you can explain without pointing at the headline is the one you understand.

Talk With Bridge Point

If you are holding two offers and the larger one is not all cash, Bridge Point Business Brokers can help you line up the wire, the note, the earn-out, and any rollover before you grant exclusivity. Start with a valuation, M&A advisory, or contact us. Call (352) 515-0226.