Comparing offers for your business: looking beyond the headline price

When an owner receives more than one offer for their business, the natural instinct is to look at the biggest number first. That is understandable. But the headline price is only one part of an offer, and two offers that look similar on the first page can lead to very different outcomes once the detail is worked through.

In this article we set out the questions we think are worth asking when you compare offers, so you can judge them on what you will actually receive and on the kind of future each one offers the business.

How much is paid on completion

Start by separating the money you receive on the day the deal completes from anything that is paid later. An offer with a slightly lower headline price but more cash on completion can be worth more to you than a higher offer where a large share depends on future events. Ask each buyer to show the split clearly: the amount paid on completion, any deferred payments and any amount linked to performance.

What the price is based on

Many offers are made on a cash-free, debt-free basis with a normal level of working capital. That means the number you receive is adjusted for cash, debt and working capital at completion. Two buyers can use different assumptions here, so it is worth asking each of them how they have calculated these adjustments and what level of working capital they expect the business to have. A higher headline price with a demanding working capital target can end up close to a lower one.

How certain the deferred part is

If part of the price is deferred or linked to performance, think about how much control you will have over the outcome and how secure the payment is. Useful questions include:

• What exactly has to happen for each payment to be made, and who measures it?
• Will you still be involved in running the business during that period, and with what authority?
• Could the buyer change the business in ways that affect the result, such as merging it with another company?
• Is the deferred amount secured in any way, or does it depend on the buyer's ability to pay later?

How likely the deal is to complete

An offer is only worth something if it completes. Ask each buyer how the purchase will be funded, whether they need outside lenders or investors to approve it, and what conditions they expect to attach. Ask how much due diligence they plan to do and how long they expect it to take. A buyer with funding in place and a clear, realistic process can be worth more than one offering a higher price with uncertain backing.

What you are being asked to promise

Every offer comes with terms that affect your position after the sale. These include the warranties you will give, any limits on claims, any period during which you agree not to compete, and how long you are expected to stay on. These points are usually settled in the legal documents rather than the first offer letter, but it is reasonable to ask about the buyer's general approach early, so you are not surprised later.

What happens to the business and the people in it

For many owners, the sale is not only a financial decision. It is also about what happens to employees, customers and the name they have built. Ask each buyer what they plan to keep, what they plan to change and how they will make decisions in the first year. Ask whether they intend to own the business for the long term or to sell it again in a few years. Their answers will tell you a lot about how your team is likely to experience the change.

Putting it together

It can help to lay the offers side by side in a simple table: cash on completion, deferred amounts and their conditions, adjustments, funding, timing, the main terms you are being asked to accept and the buyer's plans for the business. Discuss it with your accountant and solicitor. The best offer is often the one that gives you a fair price, a high chance of completing and a future for the business that you are comfortable with.

How we approach this

We buy businesses to own them for the long term, and we try to make our offers easy to compare. We explain how much is paid on completion, how any later payments work and what we expect to keep the same after the sale. If you are weighing up your options and would like to talk through how an offer from us might be structured, a short, confidential call is a sensible first step, with no obligation either way.