Where the Money Comes From When You Sell a Small Business
Owners think about the sale price as a single number that shows up in an account. In a transaction under about ten million dollars, it almost never works that way. The price is assembled from four or five separate sources, each with its own timing and its own risk, and only one of them arrives as a wire on closing day. Two sellers can agree to the identical number and end up with materially different outcomes, and the reason is almost always in the assembly rather than the negotiation.
1. The lender underwrites your business before the buyer does
Most smaller acquisitions are financed, and a large share of them run through the SBA's 7(a) program. That means your business gets underwritten twice: once by the buyer, who decides whether they want it, and once by a bank, which decides whether the cash flow will service the debt at the price the two of you agreed on. Owners are frequently surprised by how much authority sits with the second one. A business whose seller's discretionary earnings will not cover debt service plus a living wage for a new owner will not get financed at the number you want, no matter how enthusiastic the buyer is. It is worth understanding that math before you set an asking price, because it puts a practical ceiling on what a financed buyer can pay.
2. The seller note is usually part of the deal, not a sign of a weak one
In a lot of these transactions the seller is also, partly, the bank. A portion of the price is paid over several years on a note you hold. Owners hear that as a red flag the first time, and it is not — it is a structural feature of how small deals get financed. What matters is the terms. When a seller note is being used to help satisfy the buyer's equity injection, SBA rules require it to sit on full standby, meaning no payments to you at all for the first two years. Know that going in and price accordingly. A note is real money, but it is money that depends on the business performing after you have handed over the keys, and it should be evaluated on that basis rather than added to the headline number as if it were cash.
3. Earnouts show up when the story runs ahead of the numbers
If your last twelve months include a jump the historical financials do not explain — a large new customer, a recovered year, a contract that has been signed but not yet performed — a buyer will frequently propose to pay for part of it only if it holds. That is an honest response to a real uncertainty, and refusing every earnout on principle costs sellers money. But the details decide everything. Tie the measure to something simple that you can verify and the buyer cannot easily influence. Revenue is a better measure than profit once you no longer control the expense side. Keep the period short. And get your rights to the underlying records written into the agreement, because an earnout you cannot audit is a hope, not a term.
4. The pieces that nobody negotiates until closing week
Three items decide a surprising amount of the final outcome, and all three tend to get pushed to the end. First, working capital: what level of inventory and receivables you are expected to leave in the business, and what happens if the actual balance at closing is above or below it. Second, the allocation of the purchase price across asset classes, which drives your tax treatment and the buyer's depreciation in genuinely opposite directions — this is a negotiation, not an accounting formality, and it belongs in front of your CPA well before the closing table. Third, the transition: how long you are expected to stay, in what capacity, and whether any of it is paid. Owners routinely agree to a transition period in principle months before anyone defines it, then discover it means four days a week.
5. Compare offers on the timeline, not the headline
When two offers land, the useful exercise is not comparing the two big numbers. It is writing out, for each one, what you receive on the closing date, what you receive on a fixed schedule, what you receive only if something happens, and what you owe in tax on each piece. Then ask who is behind the offer and what has to be true for it to close. An offer with a lower headline and eighty percent cash at close from a buyer with committed financing is frequently worth more than a higher one with a long earnout and a lender who has not yet issued a commitment letter.
The takeaway
The number you shake hands on is a summary. What you actually take home is decided by how the price is assembled, when each piece arrives, and what has to keep going right for the conditional parts to pay. Sellers who understand that early negotiate structure alongside price. Sellers who learn it during closing week negotiate neither.
Thinking about what comes next for your business? Download the free guide — 7 Critical Points Every Business Owner Must Know Before Selling — or book a confidential conversation with Don Emmett. Straight answers from someone who's sat on your side of the table.
