Been lurking but finally have something to ask. I'm buying a small manufacturing biz (30ish employees, owner retiring). We've agreed on a headline price but now the devil's in the details. Seller wants all cash at closing, no earnout, no seller note. I want some skin in the game from him. What terms do you actually push on? I'm not trying to win every point, just not get hosed. Any war stories welcome.
acquisition
How to negotiate terms on your next business purchase
Seller note is the hilel I'd die on. If he won't carry ANY paper, that's a red flag about what he thinks of the future of the business. Even 10-15% over 3 yrs gets him to the table.
lol 'skin in the game' - every seller says they want a clean exit until you mention the working capital adjustment. then the real negotiating negotiating starts
I bought a similar sized shop 6 yrs ago. Not a lawyer but spend the money on one. The purchase agreement is where you'll live later. Specifically watch the reps and warranties survival period - the seller will want 12 months, push for 18-24. Also define 'ordinary course' in the working capital calc or they'll strip the shelves before closing. What's the lease situation? If he owns the building that's a whole separate negotiation.
everyone posts about earnouts like they're magic. Half the time the seller games the metric or the buyer runs the place into the ground and blames the earnout. Aligned incentives my foot.
fair point. but all-cash deal means zero recourse if he inflated the numbers. at least a note gives you a clawback lever tbh.
This.Also put in a transition services agreement with teeth. Seller 'helping out for a few months' is not a plan. Make it paid, specific hours, defined deliverables. Otherwise you call in month two and he's 'busy fishing'
Ask for a holdback. 5-10% of purchase price in escrow for 12 mnoths to cover any breaches. Seller will grumble but it's standard. If he's dead set on all cash, maybe he'll trade the earnout for a longer transition and a text-message-available clause.
One more thing — get the customer list and call the top 5 yourself. I skipped that, found out later one account was 30% of revenue and had a handshake deal with the old owner that expired when he left. Not a term term on paper, but its the term that matters.