What Terms Should I Negotiate?
Focus on cash at closing percentage, escrow amount and duration, earnout structure, working capital adjustments, and employment terms. The headline price is just the starting point—the structure determines what you actually get.
Most Important Terms to Negotiate
1. Cash vs Stock vs Earnout Mix
Cash at closing: The safest money—you get it immediately
Stock consideration: You become a shareholder in the buyer (risk and reward)
Earnouts: Future payments based on hitting targets (risky but can increase total value)
Negotiate for: Higher cash percentage, realistic earnout targets, shorter earnout periods
2. Escrow Terms
What it is: Money held back (typically 10-20%) for 12-18 months to cover potential issues
Negotiate: Lower percentage, shorter duration, specific release conditions
Typical range: 8-15% for established businesses, higher for first-time sellers
Pro tip: Negotiate a partial release schedule (e.g., 50% after 6 months)
3. Working Capital Adjustments
What it is: Your final price gets adjusted based on working capital at closing vs baseline
Why it matters: Can swing your final payout by hundreds of thousands
Negotiate: Reasonable baseline, clear calculation methodology, caps on adjustments
Watch out for: Buyers trying to set artificially high baselines
4. Employment and Non-Compete Terms
Employment period: Most deals require 1-3 years of employment
Role and compensation: What you'll do and how much you'll be paid
Non-compete duration: Can range from 1-5 years after you leave
Geographic scope: Where the non-compete applies
Secondary Terms That Matter
Representations and Warranties
Limit your personal liability and survival periods
Negotiate caps on indemnification amounts
Include "knowledge qualifiers" where appropriate
Closing Conditions
Minimize conditions that could kill the deal
Avoid giving buyers easy ways to walk away
Include reciprocal conditions where possible
Employee Treatment
Retention bonuses for key employees
Acceleration of stock option vesting
Severance protections if people get laid off
What Not to Over-Negotiate
- Standard legal language: Don't fight every boilerplate clause
- Reasonable due diligence requests: Being difficult here can backfire
- Market-standard terms: Pick your battles on non-standard requests
- Minor dollar amounts: Don't kill deals over small adjustments