Many owners focus on the headline price.
That is understandable. It is the number that attracts attention.
But in a private business sale, the headline price is only one part of the outcome. The real result depends on working capital, cash, debt-like items, deferred consideration, earn-outs, warranties, indemnities, completion conditions and post-sale obligations.
A strong offer can become less attractive when the terms are understood.
A lower offer can be better if the cash at completion is higher, conditions are cleaner and completion certainty is stronger.
This guide explains the main areas owners should understand before comparing offers or entering exclusivity.
Who this guide is for
This guide is for:
- Owners preparing for sale.
- Owners who have received an offer.
- Shareholders comparing transaction options.
- Advisers supporting business owners.
- Founders considering partial exit or retained equity.
- Owners who want to understand real proceeds, not just valuation.
Why headline price is not enough
A buyer may offer a headline enterprise value, but the owner’s real outcome depends on how that value is delivered.
Important questions include:
- How much is paid at completion?
- How much is deferred?
- Is there an earn-out?
- What working capital must remain in the business?
- What debt-like items are deducted?
- Are warranties broad?
- Are indemnities required?
- Is retained equity involved?
- What conditions must be satisfied?
- How certain is completion?
- What obligations remain after completion?
The highest number is not always the best offer.
Working capital in a business sale
Working capital generally refers to the operating assets and liabilities needed for the business to continue trading normally.
It may include:
- Trade debtors.
- Inventory.
- Work in progress.
- Prepayments.
- Trade creditors.
- Accruals.
- Customer deposits.
- Employee entitlements.
- Other current operating assets and liabilities.
Buyers usually expect the business to be delivered with a normal level of working capital.
If the business is delivered with less than the agreed level, the purchase price may be reduced. If it is delivered with more, the price may be increased, depending on the agreement.
Why working capital matters
Working capital matters because it affects real proceeds.
An owner may believe they are receiving a certain price, but if additional working capital must remain in the business, the net cash result may be lower than expected.
Working capital disputes often arise where:
- Normal working capital has not been agreed clearly.
- Inventory quality is uncertain.
- Debtors are old or doubtful.
- Creditors have been stretched.
- Customer deposits are material.
- Accruals are incomplete.
- Seasonality is not properly considered.
- Growth has increased working capital needs.
- Cash, debt and working capital are confused.
Owners should understand working capital before accepting an offer.
Cash-free debt-free transactions
Many private business sales are structured on a cash-free, debt-free basis.
In simple terms, this usually means:
- The seller keeps excess cash or cash is adjusted at completion.
- Debt is repaid or deducted.
- The business is delivered with normal working capital.
- Debt-like items may reduce proceeds.
- Cash-like items may increase proceeds depending on terms.
The detail matters.
Debt-like items may include:
- Bank debt.
- Equipment finance.
- ATO liabilities.
- Related-party loans.
- Accrued employee entitlements.
- Customer deposits.
- Deferred revenue.
- Unpaid capital expenditure.
- Lease liabilities depending on structure.
- Other obligations that economically resemble debt.
Owner question:
What will the buyer treat as debt-like, and how will that affect proceeds?
Deferred consideration
Deferred consideration is part of the purchase price paid after completion.
It may be:
- Fixed.
- Conditional.
- Time-based.
- Performance-linked.
- Secured.
- Unsecured.
Owners should understand:
- When the amount is paid.
- What conditions apply.
- Whether the buyer can offset claims.
- Whether security is provided.
- What happens if the buyer defaults.
- Whether the owner remains exposed to buyer behaviour.
Deferred consideration can be reasonable, but it is not the same as cash at completion.
Earn-outs
An earn-out links future payment to post-completion performance.
It may be based on:
- Revenue.
- Gross margin.
- EBITDA.
- Customer retention.
- Milestones.
- Contract wins.
- Other performance measures.
Earn-outs can help bridge valuation gaps, but they create risk.
Key questions:
- Who controls the business during the earn-out?
- Can the buyer influence the result?
- Are accounting policies fixed?
- What happens if the owner leaves?
- What happens if market conditions change?
- How are disputes resolved?
- Is the earn-out realistic?
Owners should not treat earn-out value as equivalent to cash unless the terms are strong and the risk is understood.
Warranties and indemnities
Warranties are statements the seller makes about the business.
Indemnities are specific protections for identified risks.
Both can affect the owner’s post-completion exposure.
Review:
- Scope of warranties.
- Time limits.
- Financial caps.
- Specific indemnities.
- Disclosure quality.
- Buyer claim rights.
- Escrow or retention.
- Insurance availability.
- Interaction with deferred payments.
Owners should understand what risk remains after completion.
Completion conditions
Offers may be subject to conditions such as:
- Finance approval.
- Board approval.
- Due diligence.
- Landlord consent.
- Customer consent.
- Regulatory approval.
- Key staff retention.
- Contract assignment.
- Working capital confirmation.
A high offer with many conditions may be less certain than a lower offer with fewer conditions.
Owner question:
What must happen before the buyer is actually required to complete?
Retained equity
In some transactions, the owner retains equity in the business.
This may occur in:
- Private equity transactions.
- Partial exits.
- Strategic equity deals.
- Staged sales.
- Roll-up transactions.
Retained equity can provide future upside, but the owner should understand:
- Governance rights.
- Exit rights.
- Dilution risk.
- Future valuation.
- Drag and tag rights.
- Investor control.
- Information rights.
- Future sale timing.
- What happens if performance changes.
Retained equity is only valuable if the future structure is clear and credible.
How to compare offers properly
Before comparing offers, consider:
- Headline price.
- Cash at completion.
- Deferred consideration.
- Earn-out exposure.
- Working capital requirement.
- Debt-like deductions.
- Tax and structure implications.
- Completion conditions.
- Warranty and indemnity exposure.
- Buyer credibility.
- Timing.
- Post-sale role.
- Retained equity rights.
- Completion certainty.
- Alignment with the owner’s objectives.
A proper comparison looks at the full transaction outcome, not just the top-line number.
Deal terms checklist
Before accepting an offer or granting exclusivity, ask:
- What is the headline price?
- How much is paid at completion?
- How much is deferred?
- Is there an earn-out?
- How is working capital calculated?
- What cash remains in the business?
- What debt is deducted?
- What items may be treated as debt-like?
- What conditions apply?
- What warranties are required?
- Are indemnities required?
- Is there escrow or retention?
- What is the owner’s post-sale role?
- Is retained equity involved?
- What happens if the buyer does not complete?
- Has the buyer proven funding capacity?
- Is exclusivity justified?
- Are alternatives available?
- Does the offer match the owner’s real objectives?
- What is the likely net outcome?
Common mistakes
Comparing only headline price
Headline price can mislead if terms are weak.
Ignoring working capital
Working capital can materially change proceeds.
Treating earn-out value as certain
Earn-outs are conditional and should be assessed carefully.
Accepting broad conditions
Too many conditions can reduce completion certainty.
Granting exclusivity before terms are clear
Exclusivity should not be granted before price, structure and key conditions are understood.
Yoda Capital perspective
Yoda Capital focuses heavily on terms because price alone does not determine the owner’s outcome.
A buyer’s offer should be assessed by looking at real proceeds, risk transfer, completion certainty, post-sale obligations and future optionality.
This is particularly important for owner-led businesses where the founder may remain involved, where working capital may be misunderstood, or where buyers use deferred consideration and earn-outs to manage risk.
The right transaction is not always the highest headline offer. It is the offer that best aligns value, certainty, terms and the owner’s objectives.