When you sell a business, the headline price is rarely all cash at close. An earnout pays part of the price later if the business hits agreed targets; a seller note is a loan you give the buyer, repaid over time with interest; rollover equity is a stake you keep in the new company. Each shifts risk back onto you in exchange for a higher potential total.
Key takeaways
- The headline price and the cash-at-close are two different numbers.
- Earnouts tie part of the price to future performance — and reward businesses that run without you.
- Seller notes and rollover equity shift risk to the seller for a higher potential total.
- How much of your price is contingent is itself a function of transferability.
When owners hear a sale price, they picture a wire transfer for that amount on closing day. Real deals are more layered, and understanding the structure is as important as negotiating the number — because the structure determines what you actually keep.
Cash at close vs total consideration
The "price" in a deal is total consideration — and it is usually split across several forms. Cash at close is the part you get the day you sign. The rest may come later, and may be contingent. Two deals with the same headline number can be worth very different amounts depending on how much is cash and how much is at risk.
Earnouts
An earnout pays part of the price after closing if the business hits agreed targets — typically over one to three years. Buyers use them to bridge a disagreement about future performance: "if it does as well as you say, you will be paid for it." The catch is control — once you sell, you may not run the business that has to hit the targets. This is where transferability pays off twice: a business that already runs without you is far more likely to hit its earnout, because its performance does not depend on the person who just left.
Seller notes
A seller note is a loan you extend to the buyer for part of the price, repaid with interest over a few years. It signals confidence and can get a deal done, but you are financing your own sale — so the buyer's quality, the interest rate, and what secures the note all matter.
Rollover equity
Rollover equity is a stake you keep in the combined business after the sale, common when a private-equity buyer wants you (or your team) invested in the next chapter. It can deliver a meaningful "second bite of the apple" if the new owner grows the company — but it is equity, with all the risk that implies.
The through-line
How much of your price is cash versus contingent is not just negotiation — it is a reflection of how transferable and low-risk your business is. The more the business clearly stands on its own, the more of your price you can take as cash at close, and the less you are forced to earn out. The work you do before the sale shapes the structure of the deal, not just the headline.
Frequently asked
An earnout is a portion of the sale price paid after closing, contingent on the business hitting agreed targets (usually revenue or earnings) over one to three years. It bridges the gap when buyer and seller disagree on future performance — and a business that runs without the owner is far more likely to actually earn it.
It carries risk, because you are financing part of your own sale and depend on the buyer's success to be repaid. It is common in lower-middle-market deals and can be reasonable with the right buyer, interest rate, and security — but it means part of your price is not guaranteed at close.
Your move
Find the one thing capping your company’s value.