You Agreed to $10M. Here's What You'll Actually Take Home at Closing

Most founders spend months negotiating a purchase price. They shake hands on a number, tell their family, maybe start mentally planning what comes next. Then they sit at the closing table and watch that number get reduced. Sometimes by hundreds of thousands of dollars. Sometimes by more.

Nothing went wrong. No one was dishonest. The deal closed exactly as written. The founder just didn't fully understand what they had agreed to.

This comes down to one distinction that almost no one explains clearly upfront: enterprise value is not the same as equity value. The purchase price you negotiate is the starting number. What lands in your bank account is the ending number. The gap between them is what's known as the closing waterfall, and every founder deserves to understand it before they sign anything.

Enterprise Value: The Number You Negotiate

When a buyer makes an offer to acquire your business, they are quoting enterprise value. This is the total value assigned to the business as a whole, the headline number. It is what gets discussed in letters of intent, what gets used to benchmark deals, and what founders tend to reference when asked what their company sold for.

Enterprise value does not mean "the amount of money you receive at closing." It means the total value of the business, which includes its debts and obligations. Before any proceeds reach you, a series of deductions are applied. What remains after those deductions is your equity value, the actual cash you walk away with.

The Closing Waterfall: Where the Money Goes

Debt and Debt-Like Items

The first thing that comes out of the proceeds is any outstanding debt on the business. This includes bank loans, lines of credit, equipment financing, and any other obligations the buyer is not assuming as part of the transaction. The business is typically delivered to the buyer debt-free, which means those balances get paid off at closing from the purchase price rather than separately.

Beyond traditional debt, buyers will often identify what are called "debt-like items," things that function like debt even if they are not labeled that way. Examples can include unpaid bonuses owed to employees, deferred revenue where the service has not yet been delivered, certain accrued liabilities, or tax obligations that have been building up. These items vary by deal, but they are looked at closely during due diligence and can add up quickly.

For example, if a business has $1.5M in outstanding debt and $300K in debt-like items, that is $1.8M that comes off the top before the founder sees a dollar.

Transaction Costs

Selling a business costs money. Legal fees, accounting fees, and any professional advisory costs tied directly to the transaction are typically paid at closing from the seller's proceeds rather than billed separately afterward. These are real costs that reduce the amount the founder takes home, and they should be modeled in advance so there are no surprises.

For example, if total transaction costs run $400K on a deal, that is another $400K deducted from the proceeds at closing.

Escrow Holdbacks

In most transactions, a portion of the purchase price is not paid out at closing. Instead, it is held in escrow, a neutral third-party account, for a period of time after the deal closes, typically somewhere between 12 and 24 months. This holdback exists to protect the buyer in case any of the representations and warranties the seller made during the process turn out to be inaccurate.

Escrow amounts vary, but a common range is 10 to 15 percent of the total deal value. That money is not lost. It is released to the founder at the end of the escrow period, assuming no claims are made against it. But it is important to understand that on closing day, you will not receive 100 percent of the agreed price. A portion of it follows later.

For example, on a $10M deal with a 10 percent escrow holdback, $1M would be held for up to 24 months after closing. The founder walks away with $9M at close, minus the other deductions already mentioned.

Working Capital Adjustment

This one catches founders off guard more than almost anything else in a transaction.

When a buyer agrees to a purchase price, they are assuming the business will be delivered with a "normal" amount of working capital, essentially enough cash, receivables, and liquid assets to keep the business running without the buyer needing to immediately inject money. What counts as "normal" is negotiated as part of the deal and is called the working capital peg or target.

If the business delivers more working capital than the agreed target at closing, the founder typically receives a small upward adjustment. If it delivers less, the buyer receives a dollar-for-dollar reduction in the purchase price, sometimes collected from the escrow account after close.

Many founders do not fully track this number during the final weeks before closing, and small shortfalls can turn into meaningful deductions. For example, if the agreed working capital target is $1.2M and the business closes with $900K, the founder may owe the buyer a $300K adjustment.

What This Looks Like in Practice

To make this tangible, here is a simplified example of how the waterfall might look on a hypothetical $10M deal. These numbers are for illustration purposes only and every deal is different.

Item

Amount

Enterprise Value (negotiated purchase price)

$10,000,000

Less: Outstanding Debt

($1,200,000)

Less: Debt-Like Items

($300,000)

Less: Transaction Costs

($400,000)

Less: Escrow Holdback (held, not lost)

($1,000,000)

Less: Working Capital Adjustment

($200,000)

Equity Value at Close

$6,900,000

In this example, the founder negotiated a $10M deal and took home $6.9M at closing, with another $1M potentially coming at the end of the escrow period. That is not a bad outcome. But it is a very different number than $10M, and founders who are not prepared for that gap can feel blindsided even when everything went according to plan.

Why This Matters Before You Go to Market

Understanding the closing waterfall is not just useful at the end of a transaction. It is useful from the very beginning. Founders who model their expected net proceeds early in the process make better decisions at every stage. They negotiate differently, they structure their deals with more clarity, and they do not walk away from the closing table feeling like something went wrong when it did not.

The purchase price is the starting point. Your net proceeds are what actually matters. Knowing how to get from one to the other, and what can affect that journey, is one of the most practical things a founder can understand before entering a business sale.

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