Why Founder Sellers Lose Money in the Wire
The closing payment is rarely the number on the LOI. Here’s where the gap typically hides, and how seasoned sellers control for it.
Founders selling their first business almost universally make the same mental shortcut: they treat the headline enterprise value on the letter of intent as the number that will land in their account at closing. It rarely does. The gap between LOI and wire can run 5–25% depending on structure, and most of it is foreseeable.
Where the dollars actually go
- Working capital target. Buyers normalize working capital to a “peg”, usually the trailing 12-month average. If the business is run lean, the peg is high, the close-day working capital is below it, and the seller pays a dollar-for-dollar shortfall at the wire.
- Indebtedness. Anything debt-like, capital leases, deferred revenue under some structures, accrued bonuses, customer prepayments, gets deducted. Sellers who haven’t pressure-tested this list before signing the LOI are usually surprised.
- Transaction expenses. Legal, advisory, success fees, R&W insurance. Sometimes the buyer reimburses some at closing; usually they come off the proceeds.
- Escrow / holdback. 5–10% of headline value frequently sits in escrow for 12–24 months pending working-capital true-up and indemnification claims. That capital is yours, but it’s not liquid.
- Tax treatment. Asset sales vs. stock sales, F-reorgs, 338(h)(10) elections, the structural choice can move the after-tax outcome by double-digit percentages.
What sophisticated sellers do
They negotiate the working capital peg before signing the LOI. They make the indebtedness list explicit. They get a clear definition of “transaction expenses.” And they engage a tax advisor on structure before, not after, terms are set.
The single largest after-the-fact regret most exited founders report is the same: nobody told me about the working capital peg.
The operator read
The wire number is the only number that matters. Build a bridge from headline EV to actual cash to seller, line by line, before signing anything. Everything else is theater.
The conversations that move outcomes happen in private rooms.
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