Deal structures: what the headline price hides
Cash at completion, deferred consideration, earn-outs, vendor loans and retentions. What each one means for the money you actually receive.
By Eric Ong Updated 7 min read
The headline price is the least interesting number in an offer. What matters is how much of it is certain, when it arrives, and what has to happen first.
Cash at completion
Money paid on the day. This is the only genuinely certain component, and the proportion of the total it represents is the single most useful measure for comparing offers.
Deferred consideration
A fixed amount paid later, typically over one to two years, usually not contingent on performance. Better than an earn-out because the amount is not in dispute, but you are an unsecured creditor of the buyer unless it is secured or escrowed. Ask what happens if the buyer’s own business struggles.
Earn-out
An amount contingent on the business hitting agreed targets after completion, when you no longer control it. Earn-outs bridge genuine disagreements about future performance, and they also fail often.
If you accept one, negotiate the mechanics harder than the amount. What exactly is measured, revenue or profit, and profit calculated how. Who controls the costs that sit above that line. What happens if the buyer reorganises, reallocates overhead, or changes pricing. What access you have to the numbers. What happens if you are asked to leave before the period ends.
Vendor loan
You lend part of the price back to the buyer, repaid with interest. Common in management buy-outs. It signals confidence and can widen the buyer pool. Take security if you possibly can.
Retention and escrow
A portion held back against warranty claims, commonly for twelve to twenty-four months. Normal and reasonable. Negotiate the size, the release schedule and what can be claimed against it.
Share sale or asset sale
A share sale transfers the company, with its history and its liabilities, and is what most sellers want. An asset sale transfers selected assets, leaving liabilities behind, and is what most buyers want. This is negotiable and has real tax and stamp duty consequences on both sides. Take advice specific to your position before agreeing which one.
Working capital
Completion accounts test whether the working capital left in the business is at a normal level. Agree the definition and the target early, in writing. This is one of the most common late disputes in SME deals and one of the easiest to prevent.
The question to ask about every offer
Not what is the price. What is the cash at completion, what has to happen for the rest, and who controls whether it happens.
What is your business worth?
Two minutes, six questions. You get an indicative range on screen straight away, and the full report by email. Confidential, and no obligation to do anything with it.
Common questions
What is the difference between a share sale and an asset sale?
In a share sale the buyer acquires the company itself, so contracts, licences, employees and liabilities generally continue undisturbed. In an asset sale the buyer picks specific assets and the company stays with you along with anything not transferred. Sellers usually prefer share sales for a clean break; buyers sometimes prefer asset sales to avoid inheriting unknown liabilities. The choice affects tax, stamp duty and how long completion takes.
What is an earn-out and should I accept one?
An earn-out defers part of the price against future performance, typically revenue or profit over one to three years. It is a reasonable answer to genuine uncertainty, such as customer concentration or a founder-dependent client base. Whether to accept one depends on how much control you retain over the outcome: an earn-out measured on results you can no longer influence is closer to a discount than a payment.
How much of the price is usually paid at completion?
It varies widely, and it is as important as the headline figure. A clean business with transferable earnings may see most of the consideration paid at completion. Where value depends on the owner staying or specific customers renewing, a substantial portion is commonly deferred. Compare offers on what is certain, not on what is promised.
Will I have to stay on after the sale?
Often, for a transition period. Three to six months is common where the business runs without you, and one to three years where client or clinical relationships are personal. Agree the scope, the pay and the end date in writing before signing, because an open-ended commitment tends to expand once the buyer is in control.
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