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Pricing your business correctly from the start is critical. Price too high and buyers walk away. Price too low and you leave money on the table. Here’s how to get it right.

Due diligence is the buyer’s deep-dive into your business before closing. Knowing what they’ll examine — and preparing in advance — leads to smoother sales and better outcomes.

A capable management team doesn’t just run your business better — it dramatically increases what buyers will pay for it. Here’s why building your team before a sale is essential.

When one or two customers represent the majority of your revenue, buyers see a serious risk. Learn what customer concentration means for your sale price and how to fix it.

Clean, organized financials dramatically speed up the sale process and increase buyer confidence. Here’s exactly what to review and fix before going to market.

Recurring revenue is the single most powerful driver of premium business valuations. Here’s why buyers pay more for predictable income — and how to build it into your business.

EBITDA is the most common metric buyers and lenders use to value businesses. Learn what it means and the most effective ways to improve it before going to market.

Owner dependency is one of the biggest red flags for buyers. Learn how to systematically remove yourself from day-to-day operations to maximize your sale price.

When buyers and sellers can’t agree on a single price for a business, an earnout is often proposed as a solution. It sounds reasonable on the surface — you get paid based on how the business performs after the sale. But earnouts come with real risks that sellers in St. Augustine need to understand before agreeing to one.

What Is an Earnout?

An earnout is a provision in a business purchase agreement where a portion of the sale price is contingent on the business achieving certain performance targets after closing. Rather than paying the full agreed price at closing, the buyer pays a base amount upfront — and additional payments to the seller over time if the business hits agreed-upon milestones.

Example: You and a buyer agree your business is worth $1.5M, but the buyer is only willing to commit $1.1M at closing. They propose an earnout: if the business generates $600K or more in revenue in each of the next two years, they’ll pay you an additional $200K per year. You get up to $1.5M total — but only if the business performs.

When Are Earnouts Used?

Earnouts typically appear when:

• The buyer and seller disagree on the business’s value or growth trajectory
• The business has been growing rapidly and the seller wants credit for future earnings
• There’s uncertainty about whether key customers or contracts will survive the transition
• The buyer’s financing is limited and they can’t fund the full purchase price at closing

The Risks of Earnouts for Sellers

Earnouts benefit buyers far more than sellers. Here’s why sellers should approach them with caution:

You No Longer Control the Outcome

Once you sell the business, the buyer controls operations. They make decisions about pricing, staffing, marketing, and expenses. If those decisions — intentionally or not — cause revenue or profit to fall short of earnout targets, you don’t get paid. And you have little recourse.

Disputes Are Common

Earnout disagreements are among the most litigated issues in M&A. Sellers and buyers often disagree about how performance is measured, how expenses are allocated, and whether targets were fairly achievable. Even clearly written earnout agreements end up in arbitration.

The Money May Never Come

Studies of earnout deals consistently show that sellers collect their full earnout less than half the time. Buyers have both the incentive and the ability — through accounting decisions and operational choices — to make the numbers not hit.

When an Earnout Might Make Sense

Despite the risks, there are situations where earnouts are reasonable:

• The earnout period is short (12 months or less)
• The targets are based on gross revenue rather than profit (harder to manipulate)
• The seller is staying involved in operations and maintains some influence over results
• The base payment at closing already covers your minimum acceptable price
• The earnout is a relatively small portion of the total deal value

How to Protect Yourself If You Accept an Earnout

• Use revenue, not profit, as the metric — Revenue is harder to manipulate than EBITDA or net income
• Keep the period short — One year is better than three
• Define every term explicitly — What counts as revenue? What expenses are included? Who prepares the financials?
• Get audit rights — The right to independently verify the numbers
• Include a change-of-control provision — If the buyer sells the business, the earnout accelerates and becomes due immediately
• Work with an experienced M&A attorney — Earnout language is highly technical and the details matter enormously

The Better Alternative: Negotiate a Clean Price at Closing

The best outcome for most sellers is a fair price paid in full at closing — no earnout, no uncertainty. A skilled business broker can often bridge the valuation gap through competitive marketing (creating multiple offers) and skilled negotiation, making earnouts unnecessary.

If you’re selling a business in St. Augustine or Northeast Florida and a buyer is proposing an earnout, let’s talk before you sign anything. Understanding the risks is the first step to protecting your payout.

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Working capital is one of the most misunderstood — and most negotiated — elements of a business sale. Many sellers are surprised to learn that even after agreeing on a price, the working capital calculation can meaningfully change what they actually walk away with at closing.

What Is Working Capital?

Working capital is the difference between a business’s current assets and its current liabilities. In simple terms, it’s the liquid resources the business needs to operate day-to-day.

Working Capital = Current Assets − Current Liabilities

Current assets typically include cash, accounts receivable, and inventory. Current liabilities typically include accounts payable, accrued expenses, and short-term debt.

Why Does Working Capital Matter in a Business Sale?

When a buyer purchases your business, they expect to receive it with enough working capital to operate without immediately needing to inject additional cash. If the business is delivered with less working capital than a normalized level, the buyer is effectively paying for a business that needs a cash infusion on day one.

This is why most business purchase agreements include a working capital target — an agreed-upon level of working capital that should be in the business at closing. If the actual working capital at closing is above the target, the seller may receive more. If it’s below, the seller owes the difference.

How Is the Working Capital Target Set?

The target is usually set based on a trailing average of the business’s working capital over the prior 12 months. The idea is to deliver the business with the same level of liquidity it normally operates with — not artificially inflated or stripped down.

Setting this number fairly is one of the most technically complex parts of a purchase agreement negotiation. Definitions matter: what counts as a current asset? Is cash included or excluded? How is inventory valued? These questions need precise answers in the contract.

Common Working Capital Pitfalls for Sellers

Stripping Cash Before Closing

Some sellers try to pull out as much cash as possible before closing — which is fine if the deal is structured to exclude cash. But if cash is included in the working capital calculation, drawing it down will create a shortfall at closing and reduce your net proceeds.

Letting Receivables Age

As you approach closing, slow-paying customers can cause accounts receivable to age or become uncollectible. If receivables are included in the working capital calculation, aged or uncollectible receivables will reduce the working capital delivered — and potentially the seller’s proceeds.

Inventory Surprises

For product-based businesses, inventory valuation at closing can be a significant negotiating point. Buyers will want to exclude slow-moving, obsolete, or damaged inventory from the calculation. Getting ahead of this with a clean, current inventory count is essential.

Tips for Sellers on Working Capital

• Understand your normalized working capital well before you go to market
• Keep operations running normally through closing — don’t strip the business
• Make sure the working capital definition in the purchase agreement is precise and fair
• Have your accountant review the calculation methodology before you sign
• Build a working capital adjustment mechanism into the deal that includes a post-closing true-up period (typically 60–90 days)

If you’re preparing to sell a business in St. Augustine or Northeast Florida, understanding working capital before you go to market can prevent expensive surprises at closing. I’m happy to walk you through how this typically works in deals I’ve managed.

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