Deal Terms Explained: Cash at Closing, Seller Financing and Earnouts

When an offer arrives, it's natural to focus on the price. But two offers with the same price can be worth very different amounts to you, depending on how and when you get paid. Understanding the common deal terms helps you compare offers clearly and negotiate with confidence.

Cash at closing

This is the money you receive on the day the sale closes. It's the most certain part of any deal. Buyers fund it with their own capital, bank loans, SBA loans, investor money, or a mix.

When comparing offers, look closely at how much of the price is paid in cash at closing and how certain the buyer's financing is. An offer that depends on a loan that hasn't been approved carries more risk than one backed by committed funds.

Seller financing (a seller note)

With seller financing, you agree to receive part of the price over time. The buyer signs a promissory note and pays you in installments, with interest, usually over a few years.

Why buyers ask for it: It reduces how much cash they need upfront, and it shows you believe the business will keep performing. Lenders sometimes require it.

What to weigh: You're taking on the risk that the buyer can't pay. Your attorney can help you negotiate protections, such as a personal guarantee, a security interest in business assets, and clear terms if payments are missed. Seller notes often sit behind any bank loan in priority.

Earnouts

An earnout ties part of the price to the business's future results, such as revenue or profit targets over one to three years after closing.

Why buyers ask for it: It bridges a gap when the buyer and seller disagree on value, especially if the business is growing fast or results have been uneven.

What to weigh: After closing, the buyer controls the business. Decisions about pricing, staffing, and spending can affect whether targets are met. If you agree to an earnout, make sure the targets are clear, measurable, and within reach, and that you understand how they'll be calculated.

Equity rollover

Some buyers offer you the chance to keep a minority stake in the business, or in the buyer's larger company. This lets you share in future growth. It also means part of your proceeds stays invested and isn't available as cash.

Working capital

Most deals assume the business will be delivered with a normal level of working capital: receivables, inventory, and other short-term assets minus short-term liabilities. If the actual amount at closing is above or below that target, the price is usually adjusted up or down. Agree on how the target is set early, because it can move the final number.

Transition and consulting agreements

Buyers often want the seller to stay on for a period to support customers and employees. This may be paid separately as a consulting or employment agreement. Be clear about how long, how many hours, and what your role will be.

Asset sale or stock sale

Small and mid-sized business sales are usually structured as either an asset sale or a stock (equity) sale. Buyers often prefer asset sales, while sellers often prefer stock sales, largely for tax and liability reasons. The structure, and how the price is allocated across assets, can significantly change your after-tax proceeds. This is a key area to review with your CPA.

Representations, warranties and indemnification

The purchase agreement includes statements you make about the business, such as accurate financials and no hidden liabilities. If those prove untrue, you may owe the buyer money. Part of the price is sometimes held back in escrow for a period to cover these claims. Your attorney will help you limit how much and for how long.

Comparing offers side by side

When you have more than one offer, compare:

• Total price
• Cash at closing
• Amount and terms of any seller note
• Size and conditions of any earnout
• Certainty of financing
• Escrow or holdback amounts
• Your role and time commitment after closing
• Plans for your employees and company name

The best offer is the one that gives you the most certain value on terms you're comfortable with, from a buyer you trust.

Clear terms from the start

At Legacy Lion Reserve, we use our own capital and explain our offers in plain language. If you're weighing a sale, we're happy to walk you through how a deal could look.

This article is for general education and is not financial, legal, or tax advice. Always review deal terms with your CPA and an attorney experienced in business sales.