Read the offer, not the headline.
An offer for a software business is rarely one number. It is a list of payments, and each one has its own timing and its own conditions.
Contents1.1The headline is a sum.1 / 4
§ 1.1
The headline is a sum.Of parts with different values.
Founders often compare offers by their headline price. It is the easiest number to see, and it is the number that buyers put first.
Take a hypothetical offer of $500,000. It pays $300,000 at closing, $100,000 over two years as a seller note, and $100,000 as an earn-out if revenue grows by a fifth. The headline is $500,000. The part you can count on is $300,000.
Now take a second hypothetical offer of $420,000, all at closing. It is smaller on paper. For many founders, it is the better offer.
§ 1.2
Value each part separately.Certainty, time and control.
- Part 1
Cash at closing
The most certain part. It is paid when ownership changes.
- Part 2
Deferred payments
Worth what the buyer can and will pay later. Ask what secures them.
- Part 3
Earn-outs
Worth what the targets are likely to produce, under an owner who now controls the business.
- Part 4
Escrow and holdbacks
Money held back for claims. Check the amount, the period and the claims it covers.
- Part 5
Rollover equity
Worth what a later sale or dividends produce, after others are paid first.
- Part 6
Adjustments and fees
Working-capital adjustments and advisers’ fees come out of the total. Count them.
§ 1.3
Five questions for every offer.Ask them before you compare.
How much do I receive at closing, after fees? What has to happen for me to receive the rest, and who controls it? What happens if the buyer cannot pay a later amount? What can the buyer claim back, for how long and up to how much? What happens to the business, its customers and its people after the sale?
The last question is not about money. For many founders, it decides more than the others.
§ 1.4
What we try to do.Our own rules.
We send proposed terms only after we review the records, so that the numbers rest on evidence. We explain how we reach a number.
We price a business at realistic operating costs, before we count any improvement. We do not ask a founder to pay for our plans with a lower certain price and a larger conditional one.
- 1The offers in this essay are hypothetical examples. They are not Playbook Media offers or market data. This essay is not legal, tax or financial advice. ↩
End of essay 1