How Plumbing Business Deals Are Structured

Two offers can carry the exact same number on the cover page and still be worlds apart once you read past the headline. That's the trap a lot of plumbing owners fall into when they're comparing offers for the first time: they anchor on the total and skip the part that actually determines how much of that number they'll ever see and when.

That's roughly what happened to Mike. He had two offers on the table that looked nearly identical at first glance: same headline number, almost to the dollar. It wasn't until his advisor walked him through how each deal was actually structured that he realized they were barely comparable at all.

The Building Blocks of a Plumbing Business Sale

Most plumbing business sales aren't a single lump-sum payment. They're built from a few different pieces, and understanding each one separately is what makes it possible to compare two offers honestly instead of just comparing two numbers.

1. Cash at close 

It is the portion of the purchase price you receive the day the deal closes. It's the most straightforward and lowest-risk piece. Money in hand, no conditions attached. 

According to the IBBA and M&A Source's Market Pulse survey, cash at close made up roughly 76% to 89% of the typical purchase price on lower middle-market deals in the most recent reporting period, with the rest of the price bridged through seller financing, earnouts, or retained equity.

2. A seller note 

A portion of the price the buyer pays you over time, usually with interest, instead of at closing. In effect, you're financing part of your own sale. Seller notes are common, particularly with independent buyers who can't line up full financing upfront. Industry data on lower middle market transactions puts seller financing in the range of roughly 10% to 30% of the total purchase price when it's used. 

They give the buyer breathing room, but they also mean part of your payout depends on the buyer successfully running the business afterward.

3. An earnout 

Ties part of the purchase price to the business hitting specific performance targets after the sale, typically over one to three years. Earnouts can bridge a gap when a buyer and seller disagree on valuation, but research on business sale terms suggests they're the exception rather than the rule in smaller deals. 

One widely cited industry study found earnouts appear in less than 5% of smaller business transactions, becoming more common as deal size and complexity increase. When they do show up, part of your money depends on performance you may no longer fully control.

4. Equity rollover 

Common in private equity-backed deals, it means you keep a stake in the business or the larger platform it joins, so you participate in its value if it grows and eventually sells again. This can be lucrative, but it also ties part of your outcome to decisions made by new ownership.

Why Two Similar-Looking Offers Can Mean Very Different Things

This is where Mike's two offers actually diverged. 

One was almost entirely cash at close, with a small seller note attached. The other had a lower cash portion but a larger earnout tied to revenue targets over the next two years, plus a modest equity rollover.

On paper, the totals were close. In practice, one offer put nearly all the money in Mike's hands immediately with minimal risk. The other left a meaningful chunk of his payout riding on performance and decisions he wouldn't fully control after closing. Neither structure is automatically the better one. They simply carry very different amounts of risk, and that risk has to be weighed on its own terms, separate from the number on the cover page.

What to Actually Compare Beyond the Headline Number

When you're sizing up competing offers, it helps to set the total aside for a moment and ask a few sharper questions:

• How much is guaranteed at closing, versus contingent on future performance or the buyer's ongoing success? 

• If there's an earnout, are the targets realistic and at least partly within your influence, or largely dependent on decisions the new owner will make? 

• If there's a seller note, what happens if the buyer's business runs into trouble, and what security do you have if payments stop?

•  If there's equity rollover, what do you actually know about the platform's growth plans and its own path to a future sale?

An advisor who negotiates these structures regularly can translate what each piece actually means in practice. Not just what it looks like on the term sheet.

What Mike Chose, and Why

Mike ultimately went with the offer that had more cash at close and a smaller seller note, even though the other offer's headline number was slightly higher. He decided he'd rather have certainty now than a larger figure that depended on hitting targets he wouldn't fully control after the sale.

He says understanding the actual structure, not just the number, was the single most useful thing his advisor did for him in the entire process.

If you're thinking about selling your plumbing business, or just starting to wonder what it might be worth, NorthBase is the advisor built for this. We work exclusively with home service business owners, and we bring 20 years of experience, the relationships, and the process to help maximize your outcome. Connect with Jason Hoff directly at Jason.hoff@NorthBase.com or schedule a confidential conversation at https://calendly.com/jason-northbase/30min.

There's no pressure and no obligation — just an honest conversation about what your business is worth and what comes next.

NorthBase doesn't provide legal, financial, or tax advice.

Sources:

• IBBA and M&A Source, Market Pulse Survey—cash-at-close and deal financing mix on lower middle market transactions

• Morgan & Westfield, Earnouts When Selling or Buying a Business — earnout prevalence and seller financing ranges in small and mid-sized deals