A buyer builds an offer in five steps: normalize your earnings, assign a multiple based on risk, calculate a headline enterprise value, structure how it's paid (cash, seller note, earnout), and adjust for a working capital peg — which together determine your net proceeds at close. The headline number an owner fixates on is only the top line. What you actually walk away with is decided by the structure underneath it — and readiness moves nearly every lever in your favor. Here's the model a buyer runs.
Step 1 — Normalize the earnings
A buyer doesn't pay a multiple on your tax-return profit. They first calculate normalized earnings — SDE for smaller businesses, EBITDA for larger ones — by adding back owner-specific and one-time items, then reversing any add-back they can't verify. This is where weak documentation costs you: rejected add-backs lower the base your entire offer is built on. (Which add-backs survive diligence →) · (SDE vs. EBITDA →)
Step 2 — Assign a multiple (this is a risk judgment)
The multiple isn't a market constant — it's the buyer's verdict on how durable your earnings are without you. Owner-dependent, concentrated, undocumented businesses earn the bottom of the range (~1.5x–2.5x). Owner-independent, diversified, documented businesses earn the top (~3.5x–5.0x+). The six value drivers decide where you land. (What moves your multiple most →)
Step 3 — Calculate headline enterprise value
Normalized earnings × the multiple = enterprise value, the headline number. Example: $600K normalized EBITDA × 4.0x = $2.4M enterprise value. This is the number that makes it into the conversation — but it's not what hits your bank account.
Step 4 — Structure how it gets paid
A buyer rarely pays 100% cash at close. The headline value gets split across components, each of which shifts risk between you and the buyer:
| Component | What it is | Who it favors |
|---|---|---|
| Cash at close | Paid immediately | Seller |
| Seller note | You finance part, paid over time with interest | Buyer (defers your proceeds) |
| Earnout | Contingent on the business hitting future targets | Buyer (you carry performance risk) |
| Rollover equity | You keep a stake in the new entity | Shared (upside + risk) |
| Escrow / holdback | Held against post-close issues | Buyer (protects against surprises) |
The less confident a buyer is in your earnings surviving the transition, the more weight they push into seller notes, earnouts, and holdbacks. Readiness is what lets you refuse that. A business that visibly runs without the owner earns more cash at close and fewer contingencies.
Step 5 — Adjust for the working capital peg
Most deals are done on a "cash-free, debt-free" basis with a working capital peg — a normal level of working capital (receivables, inventory, payables) the buyer expects to come with the business. Deliver less than the peg at close and your proceeds are reduced dollar-for-dollar; deliver more and you may get credited. Owners routinely lose real money here simply by not understanding the mechanic.
From headline to net: a worked example
Ready business
- Normalized EBITDA: $600K
- Multiple (owner-independent, clean): 4.0x
- Enterprise value: $2.4M
- Structure: 70% cash ($1.68M), 15% seller note ($360K), 15% earnout ($360K)
- Working capital settled at peg: no adjustment
- Cash at close: ~$1.68M; up to $2.4M with note and earnout fully realized.
Unready version of the same business
- Earnings re-cut 15% in diligence: $510K
- Multiple drops to 2.75x for owner dependency → enterprise value: $1.4M
- Structure: half pushed into an earnout
- Cash at close: ~$700K — roughly 40% less, entirely on readiness.
See where your offer would get marked down before a buyer does it for you. The Exit Readiness Score shows how a buyer would normalize, rate, and structure around your business — in five minutes, free. Find out what a buyer would see →
Why this matters years before you sell
Every lever above — the earnings base, the multiple, the cash-vs-contingent split, even the working capital position — improves with readiness, and readiness takes 12–24 months to build. The owners who net the most aren't the ones who negotiate hardest at the table. They're the ones who walked in with a business a buyer didn't need to protect themselves against.
Frequently asked questions
How do buyers calculate an offer for a business?
They normalize earnings, assign a multiple based on the risk of those earnings continuing without the owner, multiply for enterprise value, then structure payment across cash, seller notes, earnouts, and holdbacks, and adjust for a working capital peg.
What is the difference between enterprise value and net proceeds?
Enterprise value is the headline price (earnings × multiple). Net proceeds are what you actually receive after deal structure (notes, earnouts, escrow) and working capital adjustments — often meaningfully less than the headline.
What is a working capital peg?
It's the normal level of working capital a buyer expects to transfer with the business. Delivering less than the peg at close reduces your proceeds dollar-for-dollar; delivering more can be credited back to you.
Why do buyers structure offers with earnouts?
Earnouts shift the risk of uncertain or owner-dependent earnings onto the seller by making part of the price contingent on future performance. A business that clearly runs without the owner gives the buyer less reason to use one.