How Do I Know if the Offer I Got Is Actually a Good One? A Business Owner's Guide to Evaluating an Offer
An offer for your business can feel like a verdict on years of work. The number might be higher than you expected, or lower, or it might come wrapped in terms you do not fully understand. If you are asking yourself how do I know if the offer I got is actually a good one, you are asking the right question, because the headline price is only the starting point. What matters is how much you keep after taxes and fees, when you receive it, how certain it is, and whether it supports the life you want after the sale.
This guide walks through how to evaluate an offer, what to look for in a letter of intent, and how to connect the deal to your long-term wealth plan.
Start Here: A Complimentary Pre-Sale Wealth and Tax Review
Compound offers a complimentary, no-obligation pre-sale wealth and tax review. We can help you estimate after-tax proceeds under the offer's structure, compare that to what you need, and identify questions to raise with your attorney and transaction advisors. Request your pre-sale review.
Step 1: Compare the Offer to Your Number, Not the Headline
Your number is the amount you need, after taxes and transaction costs, to support your goals for the rest of your life. If you have not worked it out, start with how to figure out your number.
From the headline price, subtract:
Debt the business must pay off at closing
Transaction costs such as broker, legal, and accounting fees (see what it costs to sell a business)
Federal and state taxes on the sale
Any working capital adjustments
What remains is closer to what you will actually have to invest. Two offers with the same headline can produce very different net results.
Step 2: Break Down the Structure
When evaluating an offer for my business, owners often focus on price and overlook how it is paid. Look at each component:
Cash at closing. The most certain part of the deal.
Seller note. You lend part of the price to the buyer and are paid over time, with interest and credit risk.
Earnout. Additional payments only if the business hits future targets.
Rollover equity. You keep a stake in the business or the buyer's company, with potential upside and risk.
Escrow or holdback. A portion held back to cover potential claims after closing.
A lower offer with more cash at closing may be worth more to you than a higher offer that depends on future performance.
Step 3: Check the Terms That Move Real Dollars
Working capital target. Many deals assume a normal level of working capital is left in the business. How that target is set can move the price up or down.
Cash-free, debt-free assumptions. Understand what cash you keep and what debt you must pay off.
Asset sale or stock sale. This affects how the gain is taxed and what liabilities you keep.
Purchase price allocation. In an asset sale, the split among equipment, real estate, and goodwill affects taxes, including depreciation recapture.
Your role after closing. Employment or consulting agreements, non-competes, and their compensation.
Step 4: Evaluate the Buyer
A good offer from a buyer who cannot close is not a good offer. Ask how the deal will be financed, whether the buyer has completed similar acquisitions, and how they plan to treat employees and customers. Strategic buyers, private equity groups, and individual buyers each bring different priorities. Our guide on selling to a competitor or private buyer covers the tradeoffs.
What a Letter of Intent Does, and Why It Matters
A letter of intent (LOI) summarizes the main terms of a proposed deal: price, structure, timing, due diligence, and conditions to closing. Most of an LOI is typically non-binding, but certain provisions, such as exclusivity and confidentiality, often are binding. Exclusivity usually means you stop talking to other buyers for a period of time.
That is why the LOI stage matters so much. Once you sign and the buyer begins due diligence, your negotiating leverage often decreases. Terms that are vague in the letter of intent, such as the working capital target or earnout definitions, can become points of contention later. Have your M&A attorney, CPA, and wealth advisor review the LOI before you sign.
Step 5: Test the Offer Against Market Value
One offer tells you what one buyer will pay. It does not always tell you what the market will pay. A valuation, or offers from multiple buyers, can help you judge whether the price is reasonable. See what your business is actually worth and who tells you. Business transaction services can help you model scenarios and compare offers side by side.
Step 6: Connect the Deal to Your Wealth Plan
The final test is personal: will this offer, structured this way, support your goals? Coordinated tax planning and preparation and wealth management can help you model after-tax proceeds, plan a cash reserve, design an income strategy, and think about charitable and family goals, some of which may need to be addressed before closing.
To explore how proceeds might grow under different assumptions, try the Compound calculator. Results are hypothetical and are not a projection of any actual investment.
Weighing an offer now? Request a complimentary pre-sale wealth and tax review. Compound works with business owners throughout Wisconsin, including Milwaukee, Madison, Green Bay, Appleton, Waukesha, and La Crosse, and in surrounding areas.
Frequently Asked Questions
How do I know if the offer I got is actually a good one?
Compare your estimated after-tax, after-fee proceeds to your number, then review how the price is paid, the key terms, and the buyer's ability to close.
Is a letter of intent binding?
Most LOI terms are typically non-binding, but provisions such as exclusivity and confidentiality are often binding. Your attorney can confirm what applies to your letter.
What should I look for when evaluating an offer for my business?
Cash at closing versus deferred payments, working capital terms, asset versus stock structure, purchase price allocation, your role after closing, and the buyer's financing.
Should I get more than one offer?
Multiple offers can help you understand market value and may improve your negotiating position, though a broad process has confidentiality tradeoffs.
When should I involve my CPA and wealth advisor?
Ideally before you sign a letter of intent, so tax and wealth considerations can shape the terms rather than react to them.
Compound is a registered investment adviser. Registration does not imply a certain level of skill or training. This article is for informational and educational purposes only and should not be construed as personalized investment, tax, or legal advice. Tax laws are complex and subject to change. Strategies discussed may not be suitable for everyone, and there is no guarantee that any strategy will achieve its objectives or reduce taxes. Calculator results are hypothetical, are not guarantees of future results, and do not reflect any actual investment. Investing involves risk, including possible loss of principal. Diversification does not ensure a profit or protect against loss. Please consult your tax, legal, and financial professionals before acting on any information in this article. For more information, see Compound's Form ADV, available at adviserinfo.sec.gov.
About Compound Wealth
Compound Wealth believes many financial decisions benefit from being evaluated together rather than independently. The firm integrates tax planning, wealth management, accounting, and business advisory services to help clients navigate financial complexity through a coordinated planning approach tailored to their evolving needs.
