Price is a stack
Price is shorthand. When a founder says a buyer offered a certain amount, what the buyer actually offered is a stack of layers, each paid at a different time, with a different probability, and controlled by a different party. Structure negotiations are about the shape of that stack, and the founder should know which layers they will accept before the first letter of intent arrives.
| Layer | When you receive it | Certainty | Who controls it |
|---|---|---|---|
| Cash at close | Closing day | Highest | Nobody, once wired |
| Escrow or holdback | After a set period | High, less any claims | The buyer's indemnity claims |
| Seller note | Over several years | Medium; ranks behind the buyer's lenders | The buyer's ability to pay |
| Earn-out | Over the following years, if targets are hit | Low to medium | The buyer's operation of the business |
| Rollover equity | At the buyer's next sale | Lowest, with the highest upside | The buyer entirely |
From the playbook's consideration stack. Everything above cash at close is a bet on the buyer. Size the bet deliberately.
Each layer above cash at close arrives later than the one below it and depends more on the buyer. That is not a reason to refuse every deferred layer. Some of them buy a higher price, a better partner, or a second bite. It is a reason to know what each one is worth to you before you agree to it.
Why buyers propose each layer
Each deferred layer solves a problem for the buyer. Knowing which problem tells you when the layer is reasonable, and when it is simply moving risk from the buyer to you.
- Escrow or holdback. It protects the buyer against claims that what was said about the business in the purchase agreement was wrong. It is reasonable in size and length when the business has been diligenced thoroughly and its issues disclosed. It grows when the buyer expects surprises.
- Seller note. It fills a gap in the buyer's financing, or lets the buyer pay more than it can fund at closing. It is reasonable when the buyer is sound and the note is a modest part of the price. It is a risk when the buyer is stretching, because the note usually ranks behind the buyer's bank debt.
- Earn-out. It bridges a gap between what the founder believes the business is worth and what the buyer will underwrite. It is fair when the founder stays in a role that influences the result and the metric is one the buyer cannot easily manipulate. An earn-out you cannot control is a price cut with extra steps.
- Rollover equity. It keeps the founder invested alongside the buyer, and it reduces the cash the buyer has to find. It makes sense when the founder trusts the buyer's plan and has already covered the number they need.
In every case, the question is whether the layer solves a real problem in this deal, or whether it is there because nobody pushed back.
Certainty or upside
Every structure trades certainty for upside. A full cash sale is the most certain and the most final. A majority recapitalization with rollover is less certain and carries more upside. A minority sale keeps the most upside and the most risk.
None is right in general. One is right for a particular founder, and that depends on three things: the number they need for the next chapter, their appetite for a second act, and how much they trust the buyer.
The first of those, the number you need, is the one founders most often skip. It is what the next chapter actually costs, after tax, for the rest of your life, and it is personal: your own financial advisor and CPA help you work it out. Without it, there is no way to say whether the cash at close is enough, and so no way to judge how much of the price you can afford to defer.
The playbook's certainty curve places the common structures along that trade-off, from a minority sale at one end to a full cash sale at the other. Its illustrative version marks the middle of the curve, meaningful cash now with a second bite later, as the place most founders with a strong buyer should aim for. A founder with a weaker buyer, or a number that is not yet covered, belongs further toward certainty.
From headline to take-home
Enterprise value is the number in the press release. Net proceeds is the number in your account. Between them sit debt, transaction fees, working capital adjustments, escrow, seller notes, earn-outs, rollover equity, and tax. Along the way, enterprise value becomes equity value once the debt is repaid and the cash is settled, and equity value becomes what you keep once everything else is taken out.
The playbook's illustrative example walks two offers for the same business from headline to cash, line by line.
| Line | Offer A | Offer B |
|---|---|---|
| Enterprise value, the headline | $20,000,000 | $18,500,000 |
| Debt repaid at close | −$1,500,000 | −$1,500,000 |
| Transaction fees | −$1,000,000 | −$950,000 |
| Working capital adjustment | −$400,000 | $0, peg agreed at the seller's number |
| Held in escrow, 12 to 18 months | −$1,500,000 | −$500,000 |
| Seller note, paid over 3 to 5 years | −$3,000,000 | $0 |
| Earn-out, at risk | −$4,000,000 | −$1,000,000 |
| Rollover equity, illiquid | $0 | −$3,000,000 |
| Cash at close, before tax | $8,600,000 | $11,550,000 |
| Estimated tax | −$2,000,000 | −$2,600,000 |
| Cash at close, after tax | $6,600,000 | $8,950,000 |
| Deferred and contingent, which may or may not arrive | $8,500,000 | $1,500,000 |
| Rollover, future value uncertain | $0 | $3,000,000 |
Illustrative. The lower headline delivers more cash at close and keeps a stake in the upside.
Offer A has the higher headline. Offer B delivers more cash at close, before and after tax: in this illustrative example, $8,950,000 after tax against $6,600,000. It also keeps a stake in the upside through rollover. Offer A's advantage sits almost entirely in the layers that may or may not arrive: a seller note paid over years and a large earn-out at risk.
Look also at the two smaller lines that are easy to skip. Offer B's working capital adjustment is zero, because the peg was agreed at the seller's number. Offer A's escrow is three times the size of Offer B's in this illustrative example. Neither line is dramatic on its own. Together with the note and the earn-out, they are the difference between the two columns.
Comparing offers on the headline is how founders choose the wrong one.
Three questions for every layer
For each layer of every offer, ask three questions.
- When do I receive it? On closing day, after an escrow period, over the life of a note, when an earn-out is measured, or when the buyer sells again. Money that arrives later is worth less than money that arrives now, and the further out it is, the more can change before it arrives.
- How certain is it? Cash at close is certain once wired. An escrow comes back unless claims are made against it. A note depends on the buyer's ability to pay and ranks behind its lenders. An earn-out depends on targets being hit. Rollover depends on the buyer's next sale.
- Who controls it? Once cash is wired, nobody does. Above that, the buyer increasingly does: its claims, its finances, how it runs the business, and when and how it sells. The more of the price the buyer controls, the more you are betting on the buyer.
Then compare offers on what the answers add up to: cash at close against the number you need, the certainty of everything deferred, and how much you trust the party that controls it. A good structure is one where you have chosen the size of the bet on the buyer, rather than had it chosen for you.
Your CPA and tax advisor work out the after-tax numbers for your own situation. The shape of the stack is negotiated in the letter of intent, while several buyers are still competing. After exclusivity, it is much harder to change.