Say you own a commercial cleaning company doing $1.3 million in revenue and $340,000 in SDE (seller’s discretionary earnings, basically what the business puts in one owner’s pocket before debt and taxes).
One afternoon, the owner of the company you bid against for half your accounts calls. He’s heard you might be thinking about retiring. He’d like to buy you out. No brokers, no fuss, just two guys who know the business working it out.
A few weeks later, he puts a number on the table: $1,020,000. That’s 3.0x your SDE. It sounds great.
It might be. But there are three things that offer isn’t telling you, and when you’re negotiating on your own, nobody is going to point them out.
Is $1,020,000 actually a good number? You have no way of knowing.
This is the core problem with a one-buyer deal. There’s no one to compare against.
A competitor looks at your business differently than anyone else. They already have an office, a scheduler, a payroll person, and supervisors driving the same routes you do. Say they figure they can cut $95,000 of overlapping cost the day they take over.
To them, your business earns $435,000 a year, not $340,000.
So their “3.0x” offer is really about 2.3x of what they’ll make from it. They can pay you more than a first-time buyer would and still get a bargain, and they have no reason to mention that.
Would another operator two counties over pay 3.3x? Would a private equity-backed company building a cleaning roll-up pay more than that? Maybe. Maybe not.
You won’t find out from a single phone call. And the competitor knows he’s the only bidder in the room, which means no deadline pressure, no reason to sharpen his pencil, and nothing stopping him from chipping at the price during due diligence once you’ve agreed to stop talking to anyone else.
One offer isn’t a market. It’s just the first number.
The headline price isn’t the price. The financing terms are.
This is where owners who go it alone get hurt the most, and it rarely shows up until it’s too late.
Look at how that $1,020,000 is actually paid:
- $300,000 cash at closing
- $450,000 seller note, paid to you over five years at 6%
- $270,000 earnout, paid over two years “as long as the customers stay”
Less than 30% of your price is money you actually receive on closing day. The other $720,000 depends on your competitor’s performance and good faith for the next five years.
Start with the earnout. SRS Acquiom’s claims data shows that across private-company deals, earnouts pay out about 21 cents on the dollar once the deals that pay nothing are counted. That’s a broad average, not a prediction for your deal. But think about who controls whether your customers stay once the deal closes. The buyer is going to merge your crews into his, change the invoices to his logo, and maybe move the team your clients have known for six years.
You carry the risk. He makes the decisions.
Now the seller note, which is where the real danger is.
When an individual buyer uses an SBA loan, a lender underwrites the deal. They check whether the buyer can actually afford the payments, and most of your price arrives in cash at closing because the bank is funding it. That underwriting protects you too, even though nobody calls it that.
When a competitor pays you with his own note, nobody underwrites anything. You’re the bank now. And in a lot of self-negotiated deals, that note is:
- Unsecured, with no claim on any assets if he stops paying
- Subordinated to his existing bank line, so his lender gets paid first if things go sideways
- Without a personal guarantee, so if his company struggles, the obligation stays with the company
Here’s the part people miss. If a competitor defaults in year two, there’s nothing to take back. Your customers have been folded into his accounts. Your crews work for him. Your brand is gone. You can’t repossess a business that doesn’t exist anymore.
If you’re going to finance part of the sale, the note needs protection: a personal guarantee, a security interest in the business assets and receivables, a clause that makes the full balance due immediately if a payment is missed, and regular financial reporting so you see trouble coming. Better still, push for more cash at close. A competitor with the ability to buy you usually has the ability to borrow more for it.
What else goes wrong when you negotiate it yourself?
The competitor has probably done a deal or two before. You’re doing this for the first time. That gap shows up in a few predictable places.
The LOI gets signed too fast. A letter of intent full of phrases like “customary terms” and “to be determined” feels like a formality. It isn’t. The payment terms, working capital, non-compete, and earnout definitions all get harder to change once you’ve signed and given the buyer exclusivity.
His attorney drafts everything. The purchase agreement is written to protect whoever writes it. If you don’t have your own deal attorney reviewing each draft, you’re agreeing to his version of what’s fair.
You hand over your playbook. Competitor buyers want customer names, pricing per account, and contract end dates. That’s the same information they’d need to take those accounts if the deal falls apart. Even the FTC’s guidance on sharing information during pre-merger due diligence recommends sharing only what each stage requires and masking customer identities, and that’s written for companies with legal departments. Before an LOI, a buyer gets “Customer A, B, and C.” Names and account-level pricing come late in diligence, after a non-solicitation agreement with real consequences is signed.
The non-compete gets written wide. A competitor has every reason to lock you out of the industry across a huge area. Match it to your actual service area and what you actually do.
The takeaway
A competitor can be the right buyer for your business. They often can pay the most.
But “can pay the most” and “is offering the most” aren’t the same thing, and a big headline number with $720,000 of it on a five-year IOU is not the same as a smaller number paid mostly in cash.
Before you negotiate with a competitor on your own, know what your business is worth to them, know what other buyers would pay, and know exactly how much of the price arrives on closing day. If you can’t answer all three, you’re not ready to sign anything yet.
Curious what your business is worth, both to the competitor who called and to the buyers who haven’t yet? Reach out to Steve at The Turn Business Advisors for a confidential conversation before you sign anything.