Why is a proceeds bridge necessary before choosing an offer?
The largest offer number may describe a package the seller did not expect. It may include later cash, retained equity, or payments tied to future results. It may omit debt, costs, and tax paid from receipts. Read the components before comparing totals.
The Plumbing Deal Proceeds Bridge is The Plumbing Business Broker's original framework for a consistent comparison. It follows value from contract definition through payment form, timing, adjustments, and duties. Use it as a decision aid. It does not interpret the law or promise net proceeds.
The seller hub covers the broader process. Use the bridge when a buyer makes a specific proposal. Record exact pricing terms rather than forcing every offer into a familiar formula. Resolve different understandings of price before smaller negotiations.
What does the quoted price include?
Is the offer enterprise value, equity value, or price for specified assets? Record cash, debt, working capital, equipment, property, deposits, and liabilities. Define cash-free and debt-free in writing, including debt-like items. These labels do not select accounts by themselves. Match the quoted base with agreed treatment before applying deductions.
IRS business-sale guidance describes separate assets for tax purposes. The commercial price definition decides what is paid for and what adjustments apply. Connect the allocation with the bridge while preserving their different roles. Tax value alone does not prove delivery or consent.
Clarify exclusions: owner vehicles, excess stock, retained receivables, or personally held property. Earnings-based value may already include the fleet needed to generate profit. Adding that fleet again can inflate the package. The Four-Number Plumbing Valuation Screen links operating resources to the earnings base. Describe included assets consistently.
How should closing cash and future consideration be separated?
Use separate columns for closing cash, notes, escrow, earnout, and rollover. Enter stated amounts before assessing risk or discounting. Identify conditions such as results, available cash, approvals, or claim release. Show uncertainty rather than hiding it in one total. The amount contractually stated can differ from the money funded, currently usable, or ultimately received under the applicable payment rights.
| Consideration form | Evidence needed | Seller decision |
|---|---|---|
| Closing cash | Funding and closing payment mechanics | Immediate available liquidity |
| Seller note | Terms, security, subordination, repayment source | Credit exposure and cash timing |
| Escrow | Holdback, claim rights, release conditions | Delayed access and contingent recovery |
| Earnout | Measurement, accounting, control, dispute terms | Performance and execution exposure |
| Rollover equity | Security class, rights, dilution, liquidity | Continuing investment risk |
| Employment pay | Role, duration, termination, benefits | Compensation for future labor |
The earnout, rollover, and escrow guide explains each entry. A maximum earnout is not expected receipt. A note's face amount does not prove every payment will arrive. Assess documents and evidence with the relevant advisers. Keep stated amount, trigger, risk, and scenario distinct.
Which adjustments belong between price and immediate cash?
Schedule debt payoff, costs, seller-paid liabilities, working-capital changes, and holdbacks. Assign payer and note whether the price already reflects the item. Get current payoff statements for interest and other changes. Keep references with each entry. The bridge should show why a deduction is made once, rather than applying the same assumed debt reduction to every offer regardless of its definition.
Working capital needs careful classification. Price may change by the difference between defined closing balances and the target. That differs from deducting every payable. Some obligations already enter working capital; others may be debt-like under the agreement. Ask accountant and counsel to reconcile the accounts. Preserve definitions so one liability is not counted in both mechanisms without recognizing the duplication.
The cash-at-close guide compares different adjustment methods. Mark estimates awaiting closing accounts or later true-up. A bridge prepared weeks earlier is not the final payment statement. Keep versions and reasons for changes. Update costs, balances, and revised terms together.
What does the bridge look like with numbers shown?
Use a hypothetical composite: enterprise value $3,150,000, with no note, earnout, or rollover. Assume debt $245,000, costs $105,000, and escrow $157,500. Working capital equals its target; there are no other adjustments. These are teaching inputs, not a client deal. Their scope matters because omitted liabilities or a different definition would change the proceeds even if the subtraction were correct.
Immediate cash before tax is $3,150,000 − $245,000 − $105,000 − $157,500 = $2,642,500. Assume a provisional $520,000 tax reserve: immediately available cash is $2,122,500. The reserve is a hypothetical planning input, not a derived flat tax rate. Replace it with the CPA's actual analysis. Its use here explains the difference between pre-tax receipts and the amount provisionally reserved for spending.
Potential later escrow release is $157,500 before claims and applicable tax. It is not closing cash and should not be deducted twice. An alternative hypothetical $3,800,000 offer with 35% rollover states $2,470,000 cash before other adjustments. A higher total does not prove better closing liquidity. Apply the same debt, cost, tax, and condition review before comparing the two hypothetical packages.
How do taxes alter the timing analysis?
Allocation, basis, entity, depreciation, and payment terms matter. For covered asset deals, Form 8594 instructions describe allocation and reporting. Obtain a deal-specific schedule rather than one tax percentage across trucks, stock, goodwill, receivables, and other assets. The parties need the correct structure and consideration inputs for that review, with the agreed allocation linked to the actual asset scope.
Later payment need not defer every tax item. IRS Publication 537 covers installment treatment and exceptions, including inventory and depreciation recapture. Taxes may be due before all price is received. Review both payment risk and tax timing for a note, earnout, or escrow. Reconcile those findings so an uncertain later receipt is not assumed to fund a known earlier obligation automatically.
Use consistent provisional assumptions until CPA review improves them. State how the model treats fees and let the CPA determine their actual tax result. The plumbing-sale tax guide outlines planning questions. Preserve uncertainty. An initial reserve is not a final bill.
How should structure and ongoing obligations affect the decision?
An offer may require guarantees, ongoing work, competitive restrictions, or licensed supervision. Those terms matter even if day-one cash stays the same. Record scope, duration, exit terms, and links to deferred price. Identify what the seller must do to preserve later payment rights. Separate duties from dollar amounts so a retirement decision includes the actual continuing work and exposure under the proposal.
The asset-versus-stock guide connects structure with allocation questions. Ask counsel what the seller retains, buyer assumes, or indemnities address. An asset sale does not eliminate all historical exposure. An equity sale does not automatically preserve all licenses. Keep actual findings with the proposed terms before treating the structure's label as proof that a risk or authority issue has been resolved.
Return to goals. A retiring seller may prefer lower, more certain payment and a manageable handoff. Another may welcome continuing equity risk. Headline price alone does not dictate either choice. Keep pay for future labor separate. Compare liquidity, uncertainty, and required involvement on the same basis, so the decision reflects both money and the commitments needed to receive it.
What is the review process before accepting terms?
- Record the proposal's pricing definition and included assets or interests.
- Separate each payment form and its timing or conditions.
- Reconcile obligations and closing adjustments without duplication.
- Obtain the CPA's allocation and tax-timing assessment.
- Review financing, guarantees, employment, and legal protections.
- Compare scenarios against the seller's liquidity and transition priorities.
Have the accountant check math and counsel check definitions against documents. An adviser can coordinate and identify gaps while each professional reviews their field. Update the bridge when an LOI or purchase agreement changes key terms.
Distinguish stated consideration, funded cash, and contingent value. A useful bridge lets the seller explain what must happen to receive each component and what remains owed or exposed. Keep that explanation with the model. Clear amounts and conditions make a deliberate comparison possible without promising that every stated dollar will arrive or that unresolved legal and tax findings are already settled.