How Deal Structure Affects What You Actually Get Paid
Why the “best offer” isn’t always the highest and how to evaluate what really matters
When a buyer offers to purchase your business, your first instinct is to focus on the number at the top. However, in M&A, headline valuation isn’t the whole story.
What matters is how the deal is structured, which determines what you’ll actually walk away with.
Cash? Deferred payments? Earnouts? Seller financing?
Each of these elements affects your outcome. The structure of a deal determines your risk, your timeline, and your certainty of payment. And in many cases, the difference between a good deal and a bad one isn’t the price, it’s the terms.
If you’re preparing for a sale, or even just thinking about it, this guide is designed to help you understand what really determines how much you walk away with. In our experience, the most successful owners start this work 12 to 24 months before selling.
Before We Begin: Share Purchase or Asset Purchase?
One of the first decisions in any M&A deal is whether the buyer is acquiring shares of the business or just its assets. This distinction shapes everything that follows.
Asset Purchase
The buyer purchases specific business assets, such as equipment, IP, or customer contracts, but not the company itself.
Why it’s common:
Limits the buyer’s exposure to legacy liabilities
Enables selective acquisition (ideal for carve-outs or distressed sales)
Often cleaner for the buyer’s books
What to watch for:
May require third-party consents
More complicated tax and legal structuring
Often more work to transition operations
Share Purchase
The buyer acquires the legal entity itself, taking ownership of all assets, liabilities, contracts, and obligations.
Why it’s common:
Generally more tax efficient for sellers
Easier to preserve contracts and licenses
Clean continuity of business operations
What to watch for:
Buyer assumes more risk (full corporate history)
Greater reliance on reps and warranties
More complex indemnity and escrow requirements
Why this matters
Your legal sale structure directly affects how your deal is structured financially—what gets taxed, who holds liability, and what protections need to be built into the offer. Structure follows strategy, and legal form follows structure.
Common Deal Components (and What They Mean)
Most M&A deals are built from a mix of financial tools. These tools aren’t mutually exclusive; they’re used together to address buyer risk, seller expectations, and deal complexity.
Here’s what each component means, its use, and what to remember. No two deals are exactly alike. Not all elements will be present in every deal, but most transactions involve a combination of two or more. Think of these not as ‘choices,’ but tools that balance risk, liquidity, and alignment for both sides.
Earnouts
What it is:
A portion of the price is paid only if the business meets defined post-close performance targets (typically revenue or EBITDA).
Why it’s used:
Helps bridge valuation gaps and de-risk projections and theoretically aligns seller incentives when they remain active post-close.
What sellers should watch for:
Earnouts are often disputed. Without control over cost levers or strategic decisions, your ability to meet targets may be limited. Structure, governance, and clarity are critical.
Cash on Closing
What it is:
The buyer pays a percentage (up to 100%) of the purchase price in cash, upfront at closing.
Why it’s used:
This is the cleanest, most straightforward structure. Sellers receive full liquidity immediately, and buyers use it to win deals quickly and eliminate post-close entanglements.
What sellers should watch for:
Buyers offering all cash may expect a slight valuation discount. Not every buyer, particularly in the lower mid-market, has the liquidity to offer this.
Equity Rollovers
What it is:
The seller retains a minority ownership stake post-sale and participates in future upside alongside the buyer.
Why it’s used:
Aligns incentives and reduces cash outlay at closing. Often used in private equity deals or when the seller wants to stay involved at a reduced level.
What sellers should watch for:
Rolled equity is illiquid. Ensure you understand governance rights, exit timing, and dilution protections.
Seller Financing / Vendor Take-Back (VTB)
What it is:
The seller agrees to receive part of the purchase price over time, typically with interest, effectively acting as a lender to the buyer.
Why it’s used:
Increases affordability for the buyer and can support a higher total valuation. Signals seller confidence.
What sellers should watch for:
You’re extending credit, treat it that way. Carefully evaluate repayment terms, protections, and buyer credibility.
Escrows / Holdbacks
What it is:
A portion of the total proceeds (often <10%) is withheld for 12–24 months to cover claims against the seller’s reps and warranties.
Why it’s used:
A standard risk-mitigation tool for buyers. It protects against post-close surprises.
What sellers should watch for:
Escrows are essentially non-negotiable in principle, but the size, term, and terms of access are negotiable. Key points include thresholds, offset rights, and what triggers a claim.
WORKING CAPITAL ADJUSTMENT
What it is:
A post-closing adjustment to the purchase price based on how much working capital is left in the business at closing, compared to a predefined “target.”
Let’s simplify:
Working capital funds the business’s operations after the deal closes. Technically, it’s the difference between current assets (like accounts receivable) and current liabilities (like accounts payable and accrued expenses). The exact definition is negotiated, but it is designed to reflect what the business needs to function normally without additional buyer funding.
Let’s grossly oversimplify:
Think of it as the operating cash or near-cash items left in the business to “ride through” day-to-day needs. For example, if you run a seasonal business and make most of your profits in the winter, you likely use that surplus to fund operations through the quieter summer.
Imagine selling your company at the end of winter and pulling out all the excess cash. How will the buyer pay summer payroll? A working capital adjustment is meant to compensate for this.
Why it’s used:
Buyers want to ensure they’re acquiring a business that can sustain operations from Day One, not one that needs an immediate cash injection.
One of the most important things to understand is this:
Working capital is often invisible in the day-to-day running of your business.
You’ve built inventory slowly. You collect payments naturally. You cover shortfalls without thinking much about it. But when you exit, that “invisible” balance becomes visible. A large working capital adjustment in a payable-heavy business, for example, isn’t uncommon, and it’s not unfair. It reflects the actual steady-state value of the company.
What sellers should watch for:
The concept is standard across almost all deals. However, the definition of working capital and the target amount can be contentious. Key issues include:
Are taxes or deferred revenue included?
What period defines “normal”?
Are one-time items excluded?
A good advisor will work with you and your accountant early to define a seller-friendly, historically grounded target. Doing so can protect you from unexpected post-closing adjustments that reduce your proceeds.
We’ll publish a deeper guide to working capital soon. But for now, we will leave it that working capital is one of the most common causes of seller frustration, not because it’s unfair, but because it’s poorly understood.
Why Structure Matters More Than Price
Two offers with the same headline number can result in very different outcomes.
Consider this:
Offer A
$8.5 million in cash, paid in full at closing
Offer B
$5 million at closing
$2 million seller note, paid over three years
$2 million earnout, dependent on future performance
$1 million held in escrow for 18 months
On paper, Offer B totals $10 million, more than Offer A. But in practice:
Only half is guaranteed at closing
A portion depends on your former business hitting targets you may no longer control.
Part of your cash is held back to cover reps and warranties
Even if you receive the full $10 million, some of it arrives years later and under uncertain conditions.
This is where the present value of money becomes critical. Simply put:
A dollar today is worth more than a dollar in three years.
Timing, risk and certainty all matter. This is also why we challenge the “I’ll just keep earning” mindset in our article on What’s My Business Worth?. Future money often looks better than it feels, especially after risk and delay are factored in.
And remember, we haven’t even touched the tax implications yet. Structure has a direct impact on what you’ll actually keep after taxes. We always advise coordinating with your accountant or tax advisor early in the process. We’re not tax professionals but work closely with them to ensure alignment.
How a Good Advisor Helps You Evaluate Structure
Most business owners sell once. Most buyers have done this before.
That’s why having the right advisor is so essential, not just to getting a deal, but also to helping you understand it.
A good M&A advisor will:
Model offers not just by price, but by timing, structure, and risk.
Break down the moving parts (earnouts, notes, escrows) so you understand what’s firm and what’s flexible
Stress-test assumptions, especially in performance-based or deferred components.
Collaborate with your accountant and legal team to ensure the structure supports your goals.
Negotiate improvements to balance risk and reward without jeopardizing the deal.
Our role isn’t just to evaluate. It’s to help lead the process with clarity, prepare you for buyer conversations, set expectations, and negotiate a structure that protects your outcome.
These issues are much easier to manage with time. That’s why we encourage owners to start this conversation well before they enter buyer discussions, even if they haven’t decided to sell yet. At Peninsula Road, we work with owners of small and mid-sized companies, typically founder-led or family-owned, who want to understand their exit options, prepare early, and sell on the right terms. We collaborate with your existing advisors or, when needed, help you connect with professionals better suited to the demands of M&A.
Whether one year out or just starting to explore options, we help you evaluate real-world outcomes, navigate buyer negotiations, and avoid common missteps.
Final Thought
Valuation gets the headlines. But structure determines what you really take home.
Before you chase the biggest number, ask:
What am I actually getting paid?
When am I getting it?
And what could go wrong in between?
Thinking About a Sale? Start Preparing Now.
Whether you’re one year away or just beginning to explore your options, we can help you:
Understand your valuation and key risk factors
Review offers for timing, structure, and fit
Build a plan to exit on your terms
We work with founder-led and family-owned businesses, collaborating with your existing accountant and legal team, or helping you build one if needed.
You only sell once. Let’s make sure it happens on the right terms.