Escrow and holdback
A portion of the price held back at closing for a period to cover indemnity claims.
In a sale
What it changes in a sale
An escrow or holdback is part of the price that is agreed but not yet paid. It is set aside for a period after closing to cover claims under the purchase agreement, and what returns to the founder depends on whether any claims are made. Its size and length are best negotiated in the letter of intent, while several buyers are still at the table.
Where it comes up
Read it in context
In the articles
- Same business, two outcomesTwo identical businesses, one prepared and one not, sell for very different prices.
- What an LOI is really sayingThe headline is one term of nine. Here are the other eight.
- When a buyer calls firstAn inbound offer is information, not a decision.
- What the buyer's memo says about youBefore any offer, someone writes an internal memo. Here is what is in it.
- Structure is priceTwo offers with the same headline can differ by millions in what you keep.
In The FNDRS Playbook
- PB22 The leverage curveYour leverage peaks the day before you sign exclusivity. It never comes back.
- PB13 Headline vs. take-homeTwo offers with the same headline can differ by millions in what you keep.
- PB14 The consideration stackPurchase price is a stack of layers with different certainty and different timing.
- PB18 The earn-out design gridAn earn-out you cannot control is a price cut with extra steps.
See the terms with your own numbers
The Go-To-Market Analysis (GTMA) builds the file a buyer would build on your business, before a buyer does.