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When making an offer should I put any earnest money down and how much?

Also, what types of contingencies should I include?

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Answers (4)
Steven St
World Business Partners, Inc
Los Angeles County, CA

P.S. Make sure your deposit is with a neutral source.

May 21, 2009
Steven St
World Business Partners, Inc
Los Angeles County, CA

Don gave a lot of good advice. I would only add that you have to weigh the offer from all sides. Are you giving the Buyer close to their price? Are you asking him to take back a large part of the sales price? Are you asking for a long or short settlement date? The size of your deposit should reflect the overall offer you are making.

Other contingencies should be discussed with your attorney. It is possible to buy a business without an attorney but its really really really foolish. A good business attorney will save you far more than they will cost you and be able to complete a deal that leaves you in a good position and not worrying two years down the road about being sued and losing everything.

Ive seen it with my own eyes before. Get the best attorney you can afford. Usually in a business deal no one is on your side except your attorney - it will be money well spent.

May 21, 2009
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The BAF Group LLC

There is no legal requirement; 10% is common, but when a business is larger, 10% might be far too much to place in escrow, simply because tying up too much of your money would be foolish, particularly if settlement is months away. We are doing a $700,000 bar right now, and $10,000 is okay, even though it is far, far below the 10%threshhold because the Buyer will settle in 45 days. The key though, is to offer to settle quickly and to provide proof that you can do the deal from a financial standpoint, if you are offering a lower amount like that.

When people suggest they want to lowball the price, I tell them that they should then think about making a larger deposit. If they want the Seller to hold the note, or agree to other terms that put the Seller at risk or at a financial disadvantage of some sort, I always suggest they put more money into the deposit, so that the Seller will realize the Buyer is, in fact serious. Even beyond the deposit, if you are asking the Seller to make some sort of accommodation or sacrifice, it is always best to try to offer some accommodation of your own, in order to make the Seller feel like you are not just trying to take advantage of him/her.

May 20, 2009
Carl J. Cusano, MBA, CBI
Capital Business Advisors, Inc.
Albany County, NY
Premium Broker

Yes, earnest money is almost always required. A reasonable amount is 5% to 10 of the purchase price.

May 20, 2009

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