Most founders focus on the headline number. Buyers focus on the structure behind it. The difference between those two things can decide how much money you actually receive, when you receive it and how much control you keep.
Knowing whether you are getting a fair price for your business starts with understanding how buyers actually calculate what they will pay. The multiple applied to EBITDA sets the headline price. But the EBITDA number used, the debt and cash adjustments, the working capital target, the earn-out structure, rollover equity requirements and control rights all determine what the founder actually receives.
Many founders receive less than they expected — not because the multiple was wrong, but because they did not understand the structure behind the headline.
| Term | Founder Translation |
|---|---|
| Headline Price | The number you hear first. |
| Enterprise Value | The value of the business before debt, cash and adjustments. |
| Equity Value | What is left after debt-like items and cash adjustments. |
| Cash At Completion | What you actually receive on completion. |
| Earn-Out | Money you may receive later if targets are achieved. |
| Rollover Equity | Value you leave invested in the next version of the business. |
The first offer is often not a market test. It is one buyer's view of value, shaped by their return requirements, risk assessment and preferred deal structure. Without competitive tension, a founder may not know whether the offer reflects fair market value or simply the price that buyer would prefer to pay.
One buyer is not a market. Unsolicited offers are often buyer-led. No competitive tension means no pressure on price or terms.
Even if a competitive process is not practical, understanding the basis of the offer — what EBITDA number is used, what multiple is applied, what assumptions are made — puts the founder in a much stronger position.
An earn-out means part of the price is dependent on future performance — often after some control has already moved away from the founder. Earn-out targets can be structured in ways that are difficult to achieve, or that create conflict between founder incentives and new owner decisions.
Rollover equity means you leave value invested in the next version of the business. This can be valuable if the business performs — and worthless if it does not. Understand the valuation, the governance and the exit pathway for rolled equity before agreeing.
Some consideration is paid in instalments over time. Understand the conditions, the risks and what happens if circumstances change after completion.
If the working capital at completion is below the agreed target, the price is reduced. If it is above, you may receive more. Founders who do not understand the working capital target often face unexpected price reductions.
Final price adjustments are often determined by completion accounts — a reconciliation of actual financial position at closing versus the agreed assumptions. Disputes at this stage can be expensive and slow.
What decisions can the founder make independently after completion? What requires PE firm approval? These terms can significantly affect both the working experience and the earn-out potential.
Before responding to or accepting an offer, a founder should be able to answer:
A fair offer reflects a market-rate multiple applied to a correctly normalised EBITDA, with appropriate adjustments for debt, cash and working capital. Without competitive tension — multiple buyers — it is difficult to test whether the offer is at market. Understanding the basis of the offer, the structure behind it and the comparison to market transactions is how founders assess fairness.
No. The first offer is typically one buyer's view of value, shaped by their return requirements and risk assessment. Without competitive tension from other buyers, there is no pressure on price or terms. Even where a formal process is not practical, founders who understand the basis of an offer are better placed to respond.
Enterprise value is the value of the business before adjustments for debt, cash and working capital. Cash at completion is what the founder actually receives after those adjustments — and after accounting for any earn-out, rollover equity or deferred consideration. The gap between these two numbers is often larger than founders expect.
Earn-outs defer part of the sale price to future performance. If targets are achieved, the founder receives the additional consideration. If not, they do not. The risk is that targets may be set at levels that are difficult to achieve, or that new ownership decisions affect performance in ways outside the founder's control.
Rollover equity means the founder leaves a portion of their equity invested in the business under the new ownership structure. If the business performs well and is sold again, that equity can be valuable. The risk is that it is illiquid and its eventual value depends on decisions the founder may not control.
Competitive tension — having multiple buyers actively interested — is the most effective way to test whether an offer reflects fair market value. Without it, buyers have less pressure on price or terms. Even the perception of other interested parties affects buyer behaviour.