Selling your company involves more than simply finding a buyer and signing papers. The process is complex, time-consuming, and often emotional. Owners must juggle negotiations, legal paperwork, and due diligence, all while continuing to run the business in a way that keeps customers, employees, and revenues steady.

The good news is that with the right preparation and mindset, you can maximize value and minimize surprises. That means understanding how deals are structured, what legal documents really matter, how purchase price mechanics work, and most importantly, where your focus should be during the sale.

How Buyers Will Pay You

In middle-market deals, which comprise purchases of smaller companies rather than large public corporations, the purchase price isn’t just a lump sum. It usually combines several forms of consideration:

• Cash at closing: The cleanest option, with no strings attached.
• Seller paper (a note): Essentially, you finance part of the deal. You receive payments over time, often with interest.
• Stock consideration: You accept shares in the buyer’s company instead of cash, which may grow in value if the buyer succeeds.
• Rollover equity: You keep a minority stake in your own company post-transaction, joining the buyer for a ‘second bite at the apple.’
• Earn-outs: Contingent payments if the company hits certain performance targets after the sale.

Cash is the simplest, most reliable option. As Phil Buffington of Balch & Bingham LLP explains, “Whenever you’re selling your business, you always would prefer cash.”

Alternative acquisition financing structures like seller financing or stock consideration all tie your payout to future performance or the buyer’s financial health. They can expand the buyer pool, but they also bring more risk for sellers. Earn-outs, in particular, shift risk back to the seller and require tight drafting.

When and How To Use the Earn-out

An earn-out performance type agreement allows you to increase the amount of money you are paid over time, based on the performance or future performance of the company.

Earnouts are useful when buyer and seller disagree on valuation, however Brad Pickard of Republic Partners warns that earn-outs should only be used as a last resort to bridge any gap in valuation. They are highly problematic, often leading to disputes, and should be brought up as late as possible in the sale process.

Best practices include:

• Tie the earn-out to objective metrics like top-line revenue or gross profit.
• Avoid metrics easily manipulated by management, like EBITDA or net income.
• Spell out accounting principles (GAAP, cash versus accrual).
• Secure audit rights or regular financial reporting.
• Include a dispute-resolution mechanism in the purchase agreement.

Earn-outs rely on future performance metrics. If those metrics aren’t defined clearly, disagreements can arise.

Jonathan Friedland of Much Shelist stresses here: “There are a million things that can be disputed in an earn-out, unless it’s written in a way that’s very clear and very measurable.”

Price Mechanics You’ll Hear About

Agreeing on a purchase price is only the start. The actual amount you walk away with can shift once the details are worked out.

• Working capital adjustments: Buyers and sellers negotiate a ‘peg’ with a true-up post-close.
• Escrows and caps: Buyers hold back part of the price for indemnification claims, often 5–10% for 12–24 months.
• Rollover equity: Sellers sometimes roll equity into the buyer’s entity, aligning interests for a second payday.

All of these terms need to be drafted with the same clarity and precision as an earn-out. If definitions are vague, post-closing disputes are almost inevitable.

Keep Running Your Business

A classic trap is where management devotes all its energy to the sale process once an LOI is signed. However, the company’s performance during due diligence and closing matters just as much as the years of history before it.

Tom Goldblatt of Ravinia Capital advises his clients to “focus on running the business as much as possible and let the intermediary, the investment banker, focus on the sales process.”

The message is simple: stay focused on customers, employees, and sales. Let your banker handle buyer communications and your lawyer handle the documents. Buyers want stability and predictability. A slip in revenue during negotiations often leads to re-trading or a failed deal altogether.

Negotiating the Legal Documents

There are four legal documents that are essential in middle-market deals:

• NDA: Protects confidential information early in the process.
• Letter of Intent (LOI): The first document that sets the price and terms before the long-form agreement.
• Purchase Agreement (SPA/APA): The definitive contracts containing representations, warranties, covenants, and indemnities.
• Covenant: Governs operations between signing and closing.

These documents all shape who bears risk after closing, and determine how much of the purchase price actually ends up in your pocket, so don’t skim them.

Preparation Is Key

A sale is the culmination of years of work and the start of a new chapter for your company under new ownership. Preparing well financially and legally can make all the difference.

Prioritize clarity, protect your downside, and keep your business performing until the ink is dry. Do those three things, and you’ll give yourself the best chance to walk away not just with a signed deal, but with the full value you worked so hard to build.

To learn more about this topic, view How to Prepare for Sale. The quoted remarks referenced in this article were made either during this webinar or shortly thereafter during post-webinar interviews with the panelists. Readers may also be interested to read other articles about selling your business.

This article was originally published here.

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