Why the headline price isn't the whole story
When a buyer makes an offer for your home service company, the price is usually split into pieces: cash at closing, money paid later if certain goals are hit (an earnout), and sometimes ownership in the buyer's larger company (rollover equity). Understanding each piece is how you compare offers honestly.
Earnouts: getting paid for future results
An earnout ties part of your price to how the business performs after the sale, often over one to three years. Buyers like earnouts because they share the risk that results dip after the owner steps back. Sellers can benefit too, if the targets are realistic and within their control.
- Watch the metric. Revenue targets are usually easier to track and harder to manipulate than profit targets.
- Watch control. If the buyer changes pricing, staff or systems, can you still hit the target?
- Watch the definitions. Vague language becomes disputes. Every term should be specific.
Rollover equity: a second bite of the apple
With rollover equity, you reinvest part of your proceeds into the buyer's company, typically a private equity-backed platform. If that platform grows and is sold again, your stake could be worth considerably more than its original value. If it struggles, it could be worth less.
Rollover can be a great outcome for owners who believe in the buyer's plan and don't need all their money at closing. It should never be a way to make a low cash offer look acceptable.
How to evaluate offers with these terms
Ask three questions of every offer: How much cash do I get at closing? How likely is the rest, and how much of it is in my control? What happens if I disagree with the new owners? Then compare offers side by side on those answers, not just the total.
An earnout you can't control isn't really part of your price. Negotiate the definitions as hard as you negotiate the number.