From findings to a proposal
The investigation has changed the picture. Your proposal needs to reflect it.
Module Four tested the assumptions behind the proposed purchase of our fictional Cedar Workshop. The earnings adjustment is smaller. Customer continuity, management coverage and access to the building still need answers.
Now connect those findings to a buyer's decision: what price and terms can you support?
Pricing begins earlier in an acquisition. Diligence tests that thinking; it doesn't guarantee a purchase.
The consulting adjustment comes from the quality of earnings review in Module Four. It informs the buyer's price position; it does not automatically change a price both sides have agreed.
Start with the earnings behind the price.
Use supported earnings
Cedar reported one million dollars in EBITDA. The seller proposed adding back one hundred twenty thousand dollars of consulting costs.
But the review supported only forty thousand for that adjustment. The other eighty thousand paid for work the business still needed.
That leaves one million forty thousand dollars before other checks. It is not a completed valuation or guaranteed future profit.
Your operating plan matters too. If replacing the owner's work requires additional management, assess that cost. Keep those buyer-specific assumptions separate from the historical earnings review.
Knowing the earnings is only half the question. What supports the value placed on them?
Build a reasoned value range
One approach uses an earnings multiple: business value expressed as a number of times a specified earnings measure.
Relevant completed transactions can help. Compare similar businesses, their size, timing and earnings outlook. Check that the earnings measures match. An advertised asking price is not a completed sale.
Cedar's customer concentration and reliance on the owner also need assessment. Do they change expected performance or the comparison? There is no automatic discount for each risk.
Valuers may also examine future cash flow or asset values. The methods must suit the business.
For our example, we'll estimate enterprise value: the value of the operating business before considering cash and debt adjustments to the owners' interest.
Let's see how one changed input affects that estimate.
Show the illustrative value impact
For illustration only, assume five times earnings. This is not a market benchmark for Cedar.
The seller's one million one hundred twenty thousand dollars, multiplied by five, gives five million six hundred thousand.
The one million forty thousand after checking that adjustment, at the same multiple, gives five million two hundred thousand.
That is a four hundred thousand dollar difference from one earnings correction alone.
Neither result is Cedar's final value. Other checks and evidence for the multiple still matter.
And that estimate is not yet the amount paid to the seller.
Clarify what the price covers
Confirm what is being acquired and how the price is defined.
Cedar's machinery is proposed as included; the building is not. Buying particular assets and buying ownership in a company are different arrangements. Don't assume the headline number means the same thing in both.
Have your advisers clarify the treatment of cash, debt and working capital.
Remember Cedar pays for materials and wages before customers pay their invoices. The deal should specify which operating assets and liabilities count, what amount is expected at completion, and how any adjustment works.
Those definitions affect the economics. Now test the full funding requirement, not just the headline price.
Set the buyer's limit
An estimated value, a negotiated price and your own limit are different things.
Build a funding plan that includes the purchase, fees, transition costs and the cash needed to operate. Account for what the business will already contain, so working capital isn't counted twice.
Compare those needs with available capital and borrowing terms. EBITDA is not cash available after taxes, equipment spending and debt payments.
Test a downside: what if customers pay later or the handover costs more? Can the plan still meet its obligations and your investment requirements?
Your limit should reflect that analysis. Payment timing can change it.
Separate timing, conditions and ownership
Closing is when the purchase is completed. Cash at closing is paid then.
A seller note means part of the price is owed to the seller and repaid under agreed terms. Later payment does not automatically mean a lower price; interest may add to the cost.
An earn-out is different: an additional payment depends on specified future results. For Cedar, uncertainty about customer business raises questions, not an automatic recommendation. What result would be measured? Over what period? Who checks the records, and what operating expectations apply?
Rollover equity is different again. The seller retains or receives an ownership interest in the post-acquisition structure. That is ownership, not a loan repayment or a guaranteed job.
Compare the obligations, and revisit funding when terms change. None of these arrangements alone defines the handover.
Make the handover workable
Cedar's owner manages key customers, prepares quotes and oversees production.
Who takes each responsibility? What support, training, time and cost are needed? Record proposed responsibilities; don't treat them as agreed simply because they appear in a plan.
The premises issue also remains open. A lower price or a different payment schedule does not obtain permission to use the building. Your lawyer needs to assess the required permission and the consequences if it isn't obtained.
Some findings change terms. Others may prevent proceeding.
Bring those distinctions back to the same review sheet.
Make the decision explicit
For each finding, record its effect on the proposal, what remains unresolved and who owns the next action.
Cedar's earnings correction changes the illustrative calculation. Customer uncertainty needs further support. Owner responsibilities need a costed handover. Premises access still needs resolution.
Keep each change tied to its evidence. Distinguish a proposed term from one both sides have accepted.
The decision may be to continue, revise, pause or walk away. Explain why.
The result is a proposal you can discuss with your advisers and the counterparty through the agreed process, not just a price you hope will be accepted.
Check the distinction
A quick check.
The seller moves part of the payment from closing into a seller note, without changing the total purchase amount. Has the purchase become cheaper?
Not from that change alone. The same purchase amount is spread over time, not reduced. Interest and timing still affect the economics.
Before moving forward, complete one review row: the finding, its effect on price or terms, and the open question.
The review informs the proposal. Negotiation establishes which terms both sides accept. Module Six follows those agreed decisions into the purchase documents, then checks what still needs to happen before closing. A supported proposal is not yet a completed purchase.
