The number a buyer offers is not the number you keep. Net proceeds are what remain after transaction fees, debt payoff, taxes, and any holdbacks come out — and on a typical mid-market deal that gap is wide enough to change how you think about the whole transaction. Here is the formula, a worked example, and the reason deal structure matters more than the price on the term sheet.
Key takeaways
- Net proceeds = sale price − transaction fees − debt payoff − taxes − working-capital and escrow holdbacks.
- On an illustrative $8M sale, the cash you wire home can land 30–40% below the headline price once everything clears.
- Deal structure — earnout, seller note, asset vs. stock, the working-capital peg — moves your net more than the headline number does.
- Some proceeds arrive later or never: escrow releases over time, and earnouts are only paid if targets are hit.
- These figures are illustrative; your real numbers come from your CPA and the specific terms of your deal.
The offer says $8M. The wire that lands in your account says something smaller — often much smaller. The distance between those two numbers is where most of the surprise in a business sale lives, and it is entirely predictable if you know what comes out.
This is general information, not tax or legal advice. Your real numbers come from your CPA and the specific terms of your deal. But the framework below will let you read any offer with clear eyes.
The formula
Net proceeds = sale price − transaction fees − debt payoff − taxes − working-capital and escrow holdbacks.
Five lines. Each one is knowable in advance, and each one is shaped by how the deal is structured, not just how big the price is. Work through them in order and you arrive at the number that actually matters: the cash you keep.
A worked example (illustrative)
The figures below are illustrative — round numbers chosen to show how the lines interact, not a prediction for your business. Assume an $8M sale of an owner-operated company, structured as an asset sale, with some business debt outstanding.
| Line | Amount |
|---|---|
| Headline sale price | $8,000,000 |
| Transaction fees (advisor, legal, Q of E) | −$560,000 |
| Debt payoff | −$700,000 |
| Estimated taxes on the gain | −$1,900,000 |
| Escrow holdback (released later) | −$800,000 |
| Earnout (contingent, paid later) | −$1,000,000 |
| Cash wired at closing | ≈ $3,040,000 |
Each line deserves a word of explanation.
Transaction fees. Selling a company is not free. An M&A advisor or broker typically charges a success fee in the low-to-mid single-digit percent of the deal, transaction counsel bills for the legal work, and a quality-of-earnings study — which a serious buyer will expect — adds a fixed cost. Here that bundle runs about $560,000, or 7% of the price. On smaller deals the percentage tends to be higher.
Debt payoff. Most sales clear the company's interest-bearing debt at closing — bank loans, equipment financing, any seller-guaranteed lines. That $700,000 comes off the top before anything reaches you.
Taxes on the gain. This is usually the largest single deduction, and the one most sensitive to structure. Your taxable gain is roughly the price allocated to the assets sold minus your basis in them; the effective rate depends on the mix of capital gain and ordinary income, your state, and whether this is an asset or stock sale. Using a blended effective rate in the typical 25–35% range, taxes here come to roughly $1,900,000. This single line is why how the deal is structured matters as much as its size — see how much tax you pay when you sell your business.
Holdbacks and contingent pay. Buyers rarely hand over the whole price at the table. An escrow holdback — here $800,000 — is parked to cover any post-closing claims and releases to you months to a couple of years later if none arise. A working-capital peg can true the price up or down at closing depending on the cash, receivables, and payables you deliver. And if part of the deal is an earnout — $1,000,000 in this example — you only collect it by hitting agreed future targets.
Strip those out and the cash that actually wires at closing is roughly $3,040,000 — about 38% of the headline. The escrow and earnout may follow later, but they are not guaranteed, and they are not yours today.
Structure moves the number more than price
Here is the part owners underestimate: the same $8M can net wildly different amounts depending on how it is built.
- Asset vs. stock sale changes your tax bill, because it changes how the proceeds are characterized and how the buyer can allocate them. The two can differ by hundreds of thousands of dollars on a deal this size.
- Earnouts and seller notes turn certain cash into contingent or deferred cash. A higher headline price made of these can net less, and later, than a lower all-cash one — which is why you weigh offers on expected after-tax cash, not the top line. See how earnouts and seller notes work.
- The working-capital peg quietly sets how much of the price you actually keep at closing; a peg set too high hands working capital to the buyer for free.
- Escrow size and term determine how much is withheld and for how long.
Two offers with the same headline number can be a quarter-million dollars apart in what you keep. That is the leverage hiding in the structure, and it is negotiable.
What to do with this
Before you fall in love with a headline price, build the five-line bridge from price to net for any offer in front of you — then have your CPA price the tax line against your real basis and structure. The goal is not the biggest number on the term sheet; it is the most cash, after tax, with the fewest contingencies.
If you want a sense of how ready your business is to command a clean, well-structured offer in the first place, start with the free exit-readiness assessment.
Frequently asked
Because four things come out before you see cash: transaction fees (advisor, legal, quality-of-earnings), payoff of any business debt, taxes on the gain, and holdbacks such as a working-capital true-up and an escrow reserve. On a mid-market deal these typically combine to reduce the headline price by 30–40%, and some of what remains is paid over time rather than at closing.
Not necessarily. A higher headline price built on an earnout or a seller note can net less than a lower all-cash price, because part of it is contingent or deferred. The structure — asset vs. stock sale, the working-capital peg, how much sits in escrow — often changes your real net more than the price itself. Compare offers on expected after-tax cash, not the top-line number.
Rarely all at once. The bulk usually wires at closing, but escrow holdbacks release months to a couple of years later if no claims arise, and any earnout pays only as future targets are met. Your closing wire is the floor, not the total.
Your move
Find the one thing capping your company’s value.