The seller’s asking price is the opening bid, not the final answer. Every LOI has five points of negotiation — and most first-time buyers only touch one.
You’ve spent your career negotiating equipment installs, service contracts, and supply pricing. You know how to hold a number. You know when the other side is bluffing. You know how to walk away from a bad deal on a rooftop unit.
Business acquisition negotiation uses the same instincts but different levers. And here’s the problem for first-time buyers: nobody tells you what the levers are.
So you get the seller’s asking price — or worse, their LOI template — and you do one of two things. You accept it because you’re afraid of losing the deal. Or you counter on price alone and miss the four other points where real money changes hands.
Everything in an LOI is negotiable. Price is just the lever you can see. Here are all five.
Lever 1 — Price: How to Counter Without Insulting the Seller
Let’s get the obvious one out of the way. The asking price is a starting position. The seller knows it. Their broker knows it. The only person who doesn’t know it is the first-time buyer who’s terrified of offending someone.
Start your counter at 80–85% of asking price. This is standard practice, not a lowball. If the business is listed at $2.2M, a counter in the $1.76M–$1.87M range tells the seller you’re serious and you’ve done your homework. A counter at $2.15M tells them you haven’t.
The key is justification. Don’t just throw out a number — anchor it to specifics:
- “Your trailing 12 months include $150K in install revenue earned under tax credits that expired in Q4. Adjusted revenue supports a lower multiple.”
- “SDE includes $80K in add-backs we can’t verify without full due diligence. Our offer reflects confirmed SDE only.”
- “Three service agreements are month-to-month with no renewal history. We’ve discounted those from recurring revenue.”
Use the split-multiple framework. Service revenue is stickier than install revenue. Price service revenue at 3–4x SDE contribution and install revenue at 2.5–3x. This gives you a defensible number that the seller’s own accountant will have a hard time arguing with. For more on how to run these numbers, see the full breakdown in our guide to HVAC acquisition math.
One more thing: never counter with a round number. $1.87M feels like it came from a spreadsheet. $1.9M feels like it came from a gut. The seller takes the specific number more seriously because it signals you did the work.
And if you’re worried about the seller walking away? They won’t. The seller expects a counter. Not countering is what signals you don’t know what you’re doing.
Lever 2 — Structure: The Tool That Changes What Both Sides Take Home
Most first-time buyers think “price” means “how much cash I hand over at closing.” It doesn’t. Price is a number. Structure is how that number actually moves between accounts — and structure can make both sides better off.
The core move: replace some of the cash with a seller note.
Here’s why this works. An all-cash deal forces the seller to recognize the entire gain in one tax year. A seller note creates an installment sale under IRC §453, which lets the seller spread the capital gains tax across the note’s payment term. They pay less tax per year. They net more money overall.
Example:
- All-cash offer: $2M at closing. Seller pays ~$300K in federal capital gains tax in Year 1. Net: $1.7M.
- Cash + seller note: $1.6M cash at closing + $500K seller note at 7% over 5 years. Seller pays ~$240K in capital gains in Year 1 (on the $1.6M), spreads the rest. Plus they earn $91K in interest on the note. Net over 5 years: ~$1.85M.
The seller nets $150K more. You reduce your upfront capital requirement by $500K. This is the lever where both sides win, and you should lead with it.
For a deeper dive on structuring seller carry, read our guide to seller financing in HVAC acquisitions.
Tactical note: Frame the seller note as a benefit to them, not a concession from you. “We’d like to structure a portion as an installment note, which gives you tax deferral and interest income” hits different than “We can’t come up with all the cash.”
Lever 3 — Earnout: Tying Payment to Post-Close Performance
An earnout is deferred purchase price that’s contingent on the business hitting specific targets after you take over. It’s risk-sharing in its purest form.
Offer 10–20% of the purchase price as an earnout tied to customer retention or revenue maintenance.
This isn’t a trick. It’s alignment. The seller says the business does $1.8M in revenue with 200 service agreement customers. Great. If that’s true, they’ll earn every dollar of the earnout. If half those customers were planning to leave anyway, you’re not stuck paying full price for a business that shrank the month you bought it.
Example earnout language:
“$200K earnout, payable in two equal installments at 6 and 12 months post-closing, contingent on 90% of active service agreement customers maintaining their agreements through each measurement date.”
Rules for earnouts that actually work:
- Keep metrics simple. Customer retention rate. Revenue maintenance against a trailing 12-month baseline. Things you can count with a spreadsheet, not a forensic accountant.
- Keep metrics within the seller’s influence. If you’re asking the seller to stay on for a 6-month transition (and you should), tie the earnout to things they can actually affect — like customer introductions and relationship handoffs.
- Avoid revenue-growth earnouts. These create ugly disputes. Did the new install revenue come from the seller’s reputation or the buyer’s marketing spend? You’ll argue about it. Just don’t.
- Make the measurement mechanical. Define exactly how you’ll count, who counts, and what happens if you disagree. Put it in the LOI so the purchase agreement just copies it.
The seller’s likely reaction: “I’m not earning my own money twice.” Your response: “You’re not. If the business performs as you’ve represented, you receive 100% of the earnout. This only adjusts if results differ materially from what’s been presented.”
Lever 4 — Working Capital: The $100K Swing Nobody Talks About
This is the lever that catches first-time buyers off guard. It’s not glamorous. It doesn’t show up in the headline price. But it routinely swings $50K–$150K at closing, and most buyers don’t even know it’s negotiable.
What it is: The working capital peg is the target level of net working capital (current assets minus current liabilities) the business should have at closing. If actual NWC at closing exceeds the peg, you pay the seller the difference. If it falls short, the seller pays you.
Why it matters for HVAC: HVAC businesses have extreme seasonality. Accounts receivable in July — when every commercial unit in the city is running and you’ve got 30 open install jobs — can be 3x what they are in January. Inventory swings too. You’re stocking refrigerant and condensers in spring, burning through them by August.
The broker’s move: The listing broker will propose the annual average NWC as the peg. This sounds reasonable. It isn’t.
Example:
- Annual average NWC: $180K
- January historical average NWC: $95K
- You close in January with the annual peg: you owe the seller $85K at closing above and beyond the purchase price
That $85K isn’t buying you anything. It’s a timing artifact. The business naturally runs leaner in winter. You’re paying a premium for seasonality.
Your counter: Propose the month-of-closing trailing 24-month average as the NWC peg. This uses real data from the same month across two years, smoothing out anomalies while reflecting the actual seasonal position of the business.
Script: “We’d like to set the NWC peg using the trailing 24-month average for the month of closing. This accounts for the seasonal nature of HVAC cash flows and gives both sides a target that reflects what the business actually looks like at that time of year.”
If the seller pushes back, ask them to show you the month-by-month NWC for the past two years. The chart will make your argument for you.
Lever 5 — Contingencies: Your Exit Ramps
The seller’s LOI template — if they provide one — will include minimal contingencies. Maybe a due diligence period. Maybe a financing condition. That’s it.
Your counteroffer should include every exit ramp you might need. You can always waive a contingency later as a concession. You can’t add one after the LOI is signed without reopening the entire negotiation.
Essential contingencies for a first-time HVAC buyer:
- Due diligence contingency. Standard: 45–60 days, with the right to extend 15 days for cause. “Cause” means the seller was slow producing documents, not that you were slow reading them. This is your window to verify everything — see the full closing process from LOI to keys.
- Financing contingency. If you’re using an SBA loan, the deal is void if your loan isn’t approved. Period. No lender will let you close without this, and no reasonable seller will object to it.
- License transfer contingency. HVAC contractor licensing varies by state. Some states allow license transfer. Some require you to hold your own. If you can’t get licensed, you can’t operate the business. This contingency keeps you from being contractually obligated to buy something you can’t legally run.
- Material adverse change clause. Protects you if the business deteriorates between LOI signing and closing. Lost a major commercial contract? Key van totaled with no insurance? Compressor inventory destroyed in a warehouse flood? You need an out.
- Employee retention condition. If the lead installer or service manager walks before closing, the business you’re buying isn’t the business you underwrote. Require written confirmation from key employees that they intend to stay through closing and for a defined period after.
Every contingency is an exit ramp. The seller will push back on some — that’s expected. Prioritize the ones that protect you from risks you can’t control. Knowing when to walk away from a deal starts with having the contractual right to do so.
The Negotiation Posture: Firm on Economics, Flexible on Ego
Here’s where first-time buyers make their biggest mistake. They think negotiation is adversarial. It’s not. It’s collaborative problem-solving with competing interests.
Frame everything as “fair to both sides.” Never as “I win, you lose.” The seller built this business. They’re emotionally attached to it. If you make them feel like you’re trying to steal it, they’ll walk — even if your offer is objectively better than the alternative.
Your opening script: “We want this deal to work. We think there’s a great fit here. Here’s what the numbers support, and here’s a structure that we believe is fair to both sides.”
Where to be flexible (things that matter to the seller but don’t cost you real money):
- Timeline flexibility — closing in 75 days instead of 60 costs you nothing
- Public announcement — letting the seller control the narrative with employees and customers is free
- Seller’s title during transition — “Senior Advisor” for six months costs you a business card
- Office arrangements — the seller wants to keep their desk for a few months? Let them
Where to hold firm (things with dollar values):
- Purchase price
- Deal structure (cash vs. note split)
- NWC peg and measurement methodology
- Earnout metrics and thresholds
The most important thing you can do before the negotiation starts: Know your walk-away number. Write it on a piece of paper. Put it in your desk drawer. When the negotiation gets emotional — and it will — open that drawer. If the deal has drifted past your number, you walk. No exceptions.
If you haven’t built your walk-away framework yet, read our guide on the LOI decoded to understand every term before you sit down at the table.
What the Seller’s Counter Will Look Like (And How to Respond)
You’ve sent your counteroffer. Now the seller responds. Here’s what to expect and how to handle it.
Pushback on price: “We have another interested buyer at full ask.”
Your response: “That’s great — we’d encourage you to pursue that if it’s the right fit. Our offer reflects the adjusted financials and current market multiples. We’re happy to pause while you explore that option.”
Nine times out of ten, there is no other buyer at full ask. And if there is, you don’t want to be the person who overpaid to beat them. For practical guidance on how to handle competing buyer pressure, Mintz’s seller LOI considerations breaks down common seller tactics.
Pushback on earnout: “I already proved what this business can do. I’m not earning my money twice.”
Your response: “The earnout is structured so that if the business performs as presented, you receive 100% of the deferred amount. It only adjusts if actual results differ from your representations. This protects both of us.”
Pushback on NWC peg: “Our broker always uses the annual average. That’s industry standard.”
Your response: “Annual average doesn’t account for the $85K seasonal swing between January and July. The month-of-closing average is more precise and reflects what the business actually holds at transfer. We think that’s fairer to both sides.”
Pushback on contingencies: “Too many outs. You’re not committed.”
Your response: “We’re committed — we’ve spent significant time and money getting to this point. We’re also careful. These contingencies protect both sides from surprises that neither of us wants. Standard deal protections aren’t a lack of commitment; they’re responsible buying.”
For a comprehensive walkthrough of LOI terms and common negotiation patterns, the Acquisition Stars LOI guide and Morgan & Westfield’s negotiation tips are both solid references.
FAQ
How much should I counter on an HVAC business asking price?
Start your counter at 80–85% of the asking price, justified by specific findings from your financial review. A counter at $1.87M on a $2.2M ask is standard. A counter at $2.15M signals you haven’t done the analysis. Always anchor your number to specific adjustments — expired tax credits, unverifiable add-backs, at-risk revenue — not just “we think it’s worth less.”
Can I negotiate the deal structure in the LOI?
Yes. Structure, earnout terms, working capital peg, and contingencies are all negotiable alongside price. In fact, structure is often where first-time buyers leave the most money on the table. A seller note with installment sale tax treatment can make both sides better off than an all-cash deal at the same price.
What is a working capital peg in an HVAC acquisition?
The working capital peg is the target net working capital (current assets minus current liabilities) the business should hold at closing. If actual NWC exceeds the peg, you pay the seller the overage. If it falls short, the seller credits you. For seasonal HVAC businesses, the peg methodology matters enormously — an annual average peg can cost you $50K–$150K more than a month-of-closing average peg depending on when you close.
Should I hire a broker or attorney for LOI negotiation?
Attorney: yes, absolutely. Have a transaction attorney review your LOI before you send it and before you sign anything the seller sends. This is non-negotiable. Broker (buy-side): only if you don’t have direct access to the seller. If the seller already has a listing broker and you’re in direct contact, adding your own broker doubles the commission load on the deal without necessarily adding value at the LOI stage. Spend that money on a good attorney and a quality of earnings report instead.
What happens if the seller rejects my counteroffer entirely?
It rarely happens. A seller who has engaged to the point of discussing LOI terms wants to sell. A flat rejection usually means one of two things: they have a competing offer they prefer, or your counter was so far from their expectations that they don’t see a path to agreement. In either case, ask what terms would work for them. Sometimes the gap is smaller than the rejection suggests, and a single concession on timeline or structure reopens the conversation.