Cash at close

The portion of the price actually wired to the seller on closing day, as opposed to paid later through a note, an earnout or rolled equity.

In more detail

The headline price and the cash at close are rarely the same number. A $10M deal might be $8M wired at closing, $1M in a seller note, and $1M in an earnout. Cash at close is the part that is certain. Buyers quote it as a percentage, and in the lower middle market an offer in the eighty to eighty-five percent range is generally competitive. A higher headline price with a lower cash percentage is often worth less than a lower headline with more certainty, which is exactly why comparing offers on price alone is a mistake.

For example

Two offers: $10M with 70% cash at close, or $9.2M with 90%. The first pays $7.0M now, the second $8.28M. The lower offer puts more money in your pocket on day one.

If you are selling

This is the number to compare offers on, not the headline. Everything beyond it depends on the business performing after you no longer control it.

If you are buying

Raising cash at close is the most direct way to win a competitive process, and it is often cheaper than raising the total price.

Related terms

Wondering what your business is actually worth?

An Estimate of Value is prepared by an analyst, not a calculator, and gives you a number you can plan around.

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