Deal Clichés Worth Questioning with Corey Kupfer

In this solocast, I wanted to take on some of the cliches and accepted wisdom that float around the deal world. There's a reason a saying becomes a cliche, usually because there's some truth in it, but I've watched too many business owners take these lines as gospel when they only apply in certain situations. So this week I'm unpacking a handful of them, starting with one I actually say to clients myself.

"Give me a price, I'll give you a structure. Give me a structure, I'll give you a price." It sounds like a throwaway line, but it's the difference between a hundred million dollars paid all up front and a hundred million dollars paid over a hundred years with no interest. Same number, completely different deal. Whether you're preparing to sell, raising capital, or structuring a licensing agreement, understanding what's actually behind the numbers matters more than the numbers themselves.

What A Deal Structure Is Actually Made Of

Too many first time sellers get anchored on a top line number without asking what's behind it. In most M&A deals, there's upfront money at closing, but a portion often gets held back in escrow for a year or two to cover the representations and warranties you're making as a seller.

Beyond that, there's usually back end money on a promissory note, paid over three to five years with no contingency other than time passing, and separately, purchase price that is contingent, for example on retention of revenue. A two year retention is very common in the wealth management space. Then there are earnouts, where you have to hit growth targets to collect, and rollover equity, where a piece of the deal converts into equity in the buyer's company.

On an eighty percent cash, twenty percent equity structure on a ten million dollar deal, the two million in equity isn't taxed when it's issued if it's done correctly. That's a real benefit, but it raises its own question. Is that equity actually worth two million dollars, and where do you sit on the buyer's cap table relative to everyone else.

The Multiple Question Nobody Asks

Everyone talks about multiples like they're a single, comparable number. I got an eight times multiple, I got a twelve times multiple, I got a three times multiple. The first question should always be, a multiple of what.

Most quoted multiples are on adjusted EBITDA, not your actual EBITDA. A buyer will often add back expenses into their pro forma numbers, arguing they need to beef up operations or compliance that you were underspending on. That adjustment changes your real multiple. If one buyer offers an eight or twelve times multiple on forty five percent EBITDA and another offers the same multiple on thirty percent EBITDA, the higher multiple is not necessarily the higher price. This is exactly the kind of gap Richard Manders gets at in Episode 328 when he talks about multiple arbitrage, and the reason I keep pushing clients to compare what the multiple is actually calculated on, not just the number itself.

Should You Take All The Money Up Front

There's a school of thought, business brokers and gurus mostly, that says get as much cash up front as you can because you're not guaranteed to see the back end money. In owner operator, Main Street level deals, that's a fair risk factor. I've seen plenty of situations where a new owner runs into trouble, stops paying, and the original owner ends up back in the business they thought they'd left.

In the middle market and up, I've rarely seen that same pattern play out on guaranteed back end payments. Part of that is because you're dealing with more professional buyers, and if a PE backed buyer burns sellers, word gets around and it hurts their ability to do future deals. The growth kegers on earnouts are a different story, those don't always land, but that's a different risk than simply not getting paid what you're owed.

The Tax Case For Spreading It Out

There's also a practical tax reason to think twice before demanding everything up front. On an installment sale, you generally pay taxes as the money comes in rather than all at once. Spreading a sale over several years can be more tax advantageous than taking the full purchase price, and the tax bill that comes with it, in a single year.

None of this means back end money is risk free. There are always examples, Enron, WorldCom, of companies that simply didn't survive to pay what they owed. But that risk looks very different depending on deal size and buyer quality, which is why blanket advice to always take cash up front misses the point.

The S Corp Regret That Wasn't Quite Right

I heard this one at an event during an M&A breakout session. A woman sharing her experience selling her business said, "I got screwed, I was an S Corp, nobody should ever be an S Corp." Her actual issue was that she hadn't understood she could have made a QSBS, qualified small business stock, election if she'd been structured as a C Corp.

Done correctly, QSBS can shield ten million dollars or more, potentially up to fifteen million depending on the specifics, from capital gains tax entirely. In her case, she was right that she left value on the table. But the blanket statement doesn't hold up broadly. A lot of industries don't qualify for QSBS at all, including law firms, investment advisors, accountants, and many service businesses. And C Corps carry double taxation, which can be the worse outcome depending on your situation.

Entity Structure Is Never One Size Fits All

There's a related wrinkle with S Corps. If you're selling to a buyer offering part cash and part equity, and different owners want different mixes of cash versus equity, an S Corp structure makes that hard to accommodate because you can't issue different classes of equity. That's part of why we'll often structure clients as an LLC partnership with individual S Corps sitting above it, similar to how tax structures come up in Episode 325 with Kelly Finnell on ESOP planning.

The point isn't that one entity type is right or wrong. It's that timing, industry qualification, ownership structure, and your goals all factor into what's actually the better choice, which is exactly why blanket statements about entity structure are dangerous without real advice behind them.

The Businesses Nobody Thinks Can Sell

There's a common view that most businesses aren't scalable or sellable, and there's truth buried in it. Most businesses that don't sell are too dependent on the owner, lack systems, or don't have recurring revenue. It's certainly easier to scale a SaaS business than one that requires a lot of labor.

But I don't believe there's such a thing as an unscalable business, only one that's harder to scale. Gary Vaynerchuk talks about this often, his tech world friends used to ask him why he was bothering with marketing since it wasn't a scalable business, and he scaled it into a significant one anyway. Most people simply aren't willing to do what scaling actually takes.

Don't Let It Become A Self Fulfilling Prophecy

The danger is treating "your business will never sell" as a permanent fact instead of a diagnosis. If your industry isn't seen as scalable or sellable, the better question is what specifically is holding your business back, and what can you learn from businesses in your space that have scaled or sold. There are always steps that make a business more scalable and more sellable, no matter the industry.

Applying This Beyond M&A

Everything here extends past a straight sale. The give me a price, give me a structure conversation applies to joint ventures, strategic alliances, and licensing deals just as much as it does to M&A. If you're negotiating a royalty and one offer is eight percent while another is six percent, the eight percent isn't automatically better. It depends entirely on what base that percentage is calculated against, whether it's total sales, net revenue, or some profit figure, and what contingencies or minimums are attached to it.

There's no universal business wisdom that applies across every industry, every size, and every deal. These sayings exist for a reason, but treating them as gospel instead of a starting point for real analysis is where people get hurt.

Tune in to this episode to hear me break down which deal cliches hold up, which ones don't, and how to ask better questions the next time somebody hands you a number instead of a structure.

Listen to the Full DealQuest Podcast Episode Here: https://www.coreykupfer.com/blog/dealcliches

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Corey Kupfer is an expert strategist, negotiator, and dealmaker. He has more than 35 years of professional deal-making and negotiating experience. Corey is a successful entrepreneur, attorney, consultant, author, and professional speaker. He is deeply passionate about deal-driven growth. He is also the creator and host of the DealQuest Podcast.

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