Angus Cuni
How to negotiate the sale of a business: Set terms
When done well, how to negotiate the sale of a business means turning a headline price into terms that say what the buyer gets, what the seller keeps, and what must happen before closing. In a hypothetical New York software consultancy sale, the founder’s leverage comes from knowing the company’s cash, obligations, and customer contracts, then getting each important promise into the written deal.
Set the seller’s priorities before discussing price
The founder should decide what a good sale must accomplish before reacting to a buyer’s number. In this hypothetical, the owner wants a clean exit, enough cash at closing to meet personal plans, and no open-ended obligation to keep managing the company. Those priorities are not interchangeable. A higher price can be a worse offer if much of it depends on future targets or remains tied up in disputes.
Start with a private list of must-haves, trade-offs, and deal breakers. A must-have might be a clear limit on transition work; a trade-off might be accepting a modest holdback if the release conditions are objective. A deal breaker could be personal liability for business debts beyond the seller’s control. The list is for decision-making, not a script to hand the buyer.
The founder also needs a defensible view of the company’s finances. An outside finance lead can help reconcile the books, explain revenue recognition, identify unusual expenses, and prepare a forecast. That work does not set the sale price by itself. It gives the seller a reliable basis to question assumptions and makes it harder for diligence to uncover avoidable surprises.
A 13-week cash flow forecast can show whether the company can keep operating during negotiations without taking a rushed deal. It should identify expected customer receipts, payroll, taxes, debt payments, and other major uses of cash. Forecasts are not promises. Ask which assumptions are uncertain, how late customer payments would change the picture, and what decisions would protect cash if the sale takes longer than expected.
Keep separate records of personal preferences and company facts. "I want the proceeds in cash" is a preference. "This customer agreement requires consent before assignment" is a fact that may affect the transaction. A clear distinction helps the founder negotiate firmly without presenting hopes as evidence or business constraints as optional preferences.
Define exactly what the buyer is purchasing
The written scope should identify the assets, entities, and obligations included in the sale. The buyer may be acquiring shares or membership interests, selected assets, or a combination. Those structures can change which liabilities remain with the seller and which contracts need consent. The founder should not assume that "the business" has one obvious meaning to both sides.
In the hypothetical sale, the consultancy’s value depends on customer relationships, software tools, work in progress, and staff knowledge. The parties should state how each is treated. Does the buyer receive the source materials and documentation? Are customer deposits transferred with the related work? Who handles projects already underway? If these details stay vague, the parties may agree on a price while disagreeing about what that price includes.
Make a schedule of assets and excluded items, then compare it with the actual records. The list might address cash, accounts receivable, equipment, intellectual property, customer data, and contracts. Some assets may be licensed rather than owned. A seller should not promise to transfer rights the company does not have, and a buyer should not assume that every account or license can move automatically.
Customer and employee arrangements need particular care. Identify agreements that require consent, notice, or a change-of-control review. Check whether any key employee has a retention arrangement or whether customer work depends on the founder personally. The point is not to alarm the buyer. It is to find practical obstacles while there is still time to agree on who will handle them.
Ask the buyer to confirm its understanding in the letter of intent and the definitive agreement. "All assets used in the business" can be too broad if the founder uses shared equipment or owns software outside the company. "Ordinary course" can also invite disagreement if no one says what happens to projects, hiring, spending, or customer commitments before closing. Specific schedules are less glamorous than a headline number, but they reduce room for surprise.
Compare price with the form and timing of payment
The seller should compare the amount expected at closing with the total headline value. In the hypothetical, one buyer offers a larger total tied to future performance; another offers less overall but more cash at closing. Neither is automatically better. The answer depends on the seller’s priorities, the company’s outlook, and the exact conditions attached to each payment.
Ask whether the price is paid in cash, buyer equity, a promissory note, or a mix. Each form carries different risks. Buyer equity can rise or fall in value and may be hard to sell. A note depends on repayment terms and the buyer’s ability to pay. Cash at closing is more certain, but the seller still needs to check what can be deducted or held back under the agreement.
If payment depends on future revenue, customer retention, or profit, the contract needs a precise formula. Define the measurement period, accounting rules, treatment of refunds and discounts, and the seller’s access to supporting records. State who resolves a calculation dispute and whether the buyer can change business practices in ways that affect the result. Without those terms, an earnout can become a new disagreement after the sale.
Ask for examples using the actual formula, including a scenario where results fall short. The example should show how the payment changes if a major customer leaves, an invoice is collected late, or the buyer moves shared costs into the acquired business. A formula that looks simple in a pitch may depend on accounting choices the seller will no longer control.
Do not treat an earnout as guaranteed money or rely on verbal assurances that the target is easy to reach. Ask what the buyer must do, if anything, to support the performance conditions. If the seller will help after closing, define the role, decision authority, reporting access, and compensation separately. The buyer should be able to operate the business, but the seller should not carry undefined responsibility for decisions made by someone else.
Agree on cash, debt, and working capital adjustments
The agreement should explain how cash, debt, and Web page working capital affect the amount paid at closing. A buyer may quote an enterprise value and then calculate a different equity payment after adjustments. The seller needs to know the definitions, measurement date, and process before treating the headline figure as proceeds.
Working capital usually refers to selected current assets and current liabilities needed to run the business, but the contract must say which accounts count. For the consultancy, accounts receivable, accrued payroll, customer deposits, and accounts payable may matter. The parties should settle how disputed or overdue receivables are treated and whether work in progress is included. A label alone does not settle the calculation.
Ask how the working capital target was set and whether it reflects normal operations. A shortfall can reduce payment, while an excess may increase it, depending on the agreement. The target should use consistent accounting practices and a period that represents the company’s usual cycle. If revenue is seasonal or customer collections vary, a single snapshot may give a distorted result.
Debt-like items need an explicit list. The buyer may treat certain unpaid taxes, transaction expenses, leases, or deferred obligations as debt for purposes of the closing calculation. The seller should ask for each item and its proposed treatment, rather than relying on a broad phrase such as "debt and debt-like items." The same obligation should not be counted twice through both a liability adjustment and a separate deduction.
Before signing, ask who prepares the closing statement, what records support it, and how long each side has to object. Specify whether the parties first meet to resolve differences and who decides any remaining accounting dispute. A controller or finance lead can help test the calculation, but legal counsel should review the agreement’s effect. Keep the calculation tied to agreed definitions, not a later change in the buyer’s preferred accounting approach.
Limit holdbacks, escrow, and seller liability
A holdback or escrow reduces the cash the seller receives at closing, so the agreement should state its purpose, amount, release conditions, and deadline. In the hypothetical, the buyer wants protection against claims that the seller’s statements were inaccurate. The founder should ask which specific risks justify the holdback and whether the proposed protection is broader than those risks.
Representations and warranties are statements about the company and the sale. They can cover authority to sell, financial records, taxes, contracts, employees, intellectual property, and litigation. The seller should review each statement against what the company can actually verify. A promise that books are accurate "in all respects" may be different from a statement that they were prepared consistently with a defined method, subject to disclosed exceptions.
Disclosure schedules are where the seller identifies exceptions, such as a customer dispute or a contract requiring consent. They should be complete and consistent with the agreement. A disclosure does not fix every risk, but leaving a known issue off the schedule can create a separate problem. The seller should ask who is responsible for gathering information and confirming that the final schedules match the records.
Negotiate limits on claims: how long claims can be made, the minimum size of a claim, the total amount recoverable, and which claims fall outside those limits. The contract may use different rules for specific subjects, so a single cap may not tell the whole story. Ask whether the buyer can offset alleged claims against an earnout or note before a claim is resolved.
Also ask what happens if the buyer discovers an issue after closing. Define notice requirements, access to records, control of any defense, and whether the seller can participate in settlement discussions. A seller should not agree to pay for a claim the buyer settles without input, especially if the settlement creates a larger loss than the underlying issue. The right terms depend on the transaction, so get the final language reviewed by transaction counsel.
Use diligence and exclusivity without losing control
Diligence lets the buyer test the company’s financial, legal, and operating records. The seller can make the process orderly by preparing a controlled data room and assigning someone to track requests. In the hypothetical, the founder’s finance lead reconciles financial statements, documents revenue policies, and flags gaps before the buyer encounters them. That preparation can improve credibility, but it cannot make weak records disappear.
Organize records by subject and keep a request log. Useful materials may include monthly financial statements, customer contracts, debt documents, tax filings, payroll records, and policies for recognizing revenue. For a business that sells software or implementation work, explain how contract terms map to revenue under ASC 606. If the company’s accounting treatment is uncertain, describe the uncertainty rather than presenting an unsupported conclusion.
Protect sensitive information. Limit access to people who need it, use appropriate confidentiality terms, and consider whether customer or employee details should be redacted until a later stage. A buyer may need enough information to assess risk, but the seller should not hand over unrestricted access to personal or commercially sensitive records without a reason and a process.
Exclusivity can prevent the seller from pursuing other buyers while one party evaluates the deal. Before agreeing, ask what the buyer must do during that period, what milestones apply, and what happens if it stops responding or changes its offer. Exclusivity has a cost: other options may go cold. The seller should not grant it merely because a buyer says it needs time.
Keep ordinary operations stable while diligence proceeds. Document material changes in spending, hiring, customer terms, or debt, and check the agreement’s rules before acting. The buyer should not use diligence to direct the company before closing, while the seller should not make unusual commitments that undermine the deal. If a request threatens normal service or confidentiality, ask the buyer to narrow it and put the reason in writing.
Make closing conditions and the handoff specific
Closing conditions say what must happen before the sale is final. They may include required approvals, contract consents, delivery of documents, or the absence of a defined legal obstacle. The seller should identify each condition, who controls it, and what happens if it is not met. A vague condition can leave the seller waiting while the buyer decides whether to proceed.
In the hypothetical, several customers need notice or consent before their agreements transfer. The parties should assign responsibility for each contact and agree on when it will happen. They should also decide whether a customer’s refusal ends the deal, changes the price, or triggers another remedy. If the answer is left open, a late consent problem can turn into leverage at the closing table.
Transition assistance should have a defined scope. State the tasks, expected availability, decision rights, compensation, expense treatment, and end point. "Reasonable assistance" may sound harmless, but it does not tell the seller whether the buyer can demand daily management, customer introductions, or technical support for an indefinite period.
Clarify what happens to employees, systems, records, and open customer work at closing. The buyer may need a practical handoff, but the seller should not promise that every employee will stay or every customer will renew. Identify the person responsible for transferring credentials and records, and make sure access is handled securely. If the company uses shared accounting systems, agree on how the seller’s separate records and personal accounts will be removed.
Ask how the parties will handle a delayed closing. Specify whether the buyer can extend the date, what notice is required, and whether either side can terminate after a stated condition remains unmet. The seller should understand which obligations continue after termination, such as confidentiality or restrictions on contacting customers. A closing plan should address failure as plainly as success.
Ask these questions before signing the engagement letter
The seller should know exactly what the finance adviser will deliver and what remains outside the engagement. A fractional or interim CFO may lead financial preparation and negotiation support, while a bookkeeper records transactions and a controller manages accounting processes and reporting. Roles can overlap, so the engagement letter should name the actual work rather than rely on a title.
Ask who will prepare the quality-of-earnings materials, test the working capital calculation, organize diligence, and review the purchase agreement’s financial definitions. A finance adviser can help explain the numbers and identify inconsistencies. Legal counsel handles legal advice and contract language. The seller should know where those responsibilities meet and who resolves a disagreement between the financial model and the written deal.
Request a clear description of the work product, assumptions, meeting cadence, data access, and decision authority. Ask what information the adviser needs from the company and what happens if the books are incomplete. Find out whether the named senior adviser will do the work or supervise others, and who handles urgent questions during negotiations. Do not assume "deal support" includes every task the seller has in mind.
Get the fees, scope changes, confidentiality duties, conflicts process, venturegrowthpartners.com and termination terms in writing. Ask whether the adviser has relationships with the buyer, lenders, or other parties that could affect independence. The seller should also ask how the adviser is compensated and whether any payment depends on a transaction closing. Those facts matter when the adviser’s judgment influences decisions about price, risk, or timing.
Before signing either engagement or sale documents, ask one final question: "Which specific terms are still unresolved, who owns each one, and what happens if we cannot agree?" If the answer is vague, the seller is not ready to sign. A clear scope and a precise deal do not remove every risk. They show which risks the seller is accepting, which the buyer is taking, and what each side must do next.
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