How much of your price the buyer keeps, and how long before you see it

Expect a buyer to hold back around a tenth of the price for twelve to twenty-four months, in an account a third party controls, released when the survival period ends. Insurance rarely shrinks that at your size. Size, duration and custody are three separate fights. Release mechanics decide when the money lands.

Is an escrow normal when you sell your company, and how big is it?

Yes, and roughly a tenth of the price is the number to plan around. SRS Acquiom, which administers these accounts, publishes data showing escrow funds in 91 percent of private-target deals and a median general indemnity escrow near 10 percent of transaction value where no insurance is used.

Insurance moves both numbers when you can get it. Summaries of SRS Acquiom’s 2024 study put the median escrow near half a percent of transaction value in insured deals, against 10 percent in uninsured ones, and underwriters have quoted retentions as low as 0.5 to 0.25 percent. But carrier coverage minimums make a policy an awkward fit at the smaller end, as Cooley’s own commentary on those retentions says. Do not plan on it.

Read those sources before a buyer quotes them at you. Those deals are far larger than yours. The percentage travels down; the duration often does not, and where a bank funds the buyer the holdback often becomes a setoff right against a seller note. The ABA’s study samples deals priced from the low tens of millions into the high hundreds of millions, mostly insured; its 2021 edition put the median indemnity escrow near 1.35 percent, and 63 percent of its 2025 deals referenced insurance. A buyer citing that 1.35 percent median is citing a market you are not in.

Data: SRS Acquiom, M&A escrows and payments data page (91 percent; 10 percent median; 12 to 18 month inspection period); law firm summaries of the SRS Acquiom 2024 and 2026 deal terms studies; ABA Private Target M&A Deal Points Study, 2021 and 2025; Cooley M&A, 2024.

What if the buyer’s first draft holds back a quarter of the price?

Treat it as an opening position, not a market term. Buyer forms at the smaller end sometimes open at twenty or twenty-five percent, buyer-held, for two or three years. No published data set supports that as market. Answer it with the published medians, not with an adjective.

Two more openings to refuse: a holdback called a “standard” buyer-administered reserve, and silence about pending claims at the release date.

If your buyer borrows through the SBA 7(a) program, the lender’s rulebook constrains structure first. As of August 2026, SOP 50 10 8 governs; SOP 50 10 8.1 applies to applications receiving a loan number on or after October 1, 2026, so the governing rulebook turns on when that number issues, not when you sign. Complete changes of ownership require an equity injection of at least 10 percent of total project costs. Seller debt counts toward it only if subordinated and on full standby, no principal or interest for the entire loan term, and it may cover no more than half the injection. Ask the lender which SOP governs.

Rule: SBA SOP 50 10 8 (effective June 1, 2025); SOP 50 10 8.1 (loan numbers issued on or after October 1, 2026); SBA Form 155. Stated as of August 2026.

Why does a third-party escrow beat a holdback the buyer keeps?

Because the money is already out of the buyer’s hands, held by an agent that answers to an escrow agreement. A buyer-administered holdback is only a promise to pay you later from the buyer’s own account. The difference shows up the day you disagree, and the day the buyer runs short.

The bankruptcy point is the sharp one, and narrower than it sounds. The estate takes the debtor’s legal and equitable interests, and where the debtor holds legal title without an equitable interest, only that title. Courts have accordingly limited an estate’s claim to escrowed funds to the debtor’s contingent interest. The result is fact-specific. It turns on the escrow terms and state law, the buyer’s reversionary interest can itself be estate property, funding while the buyer is insolvent invites a preference attack, and the automatic stay can stall a release. No such analysis exists for money in the buyer’s own account. There you wait in line with the unsecured creditors.

Law: 11 U.S.C. 541(a)(1), 541(d).

An escrow that pays only when the buyer signs is not an escrow. It is a request.

What release mechanics decide when the money actually comes back?

Release mechanics are the clauses telling the agent when to wire. They matter more than the percentage. A smaller escrow that releases only when the buyer countersigns can cost you more than a larger one that releases automatically at term. Negotiate the mechanics with the energy you spend on the number.

• Automatic release at term. The agent releases on a stated date unless it received a conforming claim notice first. No buyer signature. Expect resistance: agent forms default to joint instructions, and an agent facing conflicting instructions will hold or interplead. Define what stops the clock.
• Joint written instructions. The agent releases only when both sides sign. A buyer with nothing to lose withholds a signature and converts your money into a negotiation. Use it for disputed amounts only.
• Sub-accounts. Separate exposures get separately funded sub-accounts with their own release dates, plus a rule that no sub-account may be applied to another’s claim. Without that sentence, you have a general fund with headings.
• The partial-claim clause. Forms routinely omit it. If a 150,000 dollar claim notice is pending against a 1,000,000 dollar escrow at the release date, the agreement must say the rest releases anyway, retaining the claimed amount or 110 percent of it.
• Claim notice content. Require the alleged breach, the section breached, and a quantified estimate. A notice saying “various matters” should not hold your money.

Assume claims arrive at the deadline rather than spread evenly. That is an inference from incentives, not a statistic, and it is enough to draft against. A buyer who notices early starts a fight; one who waits loses nothing. Your partial-release language and notice requirements are the only defenses that operate that day.

A notice deadline is not a forecast of when problems appear. It is a prediction of when letters get sent.

Should the price-adjustment escrow be separate from the indemnity escrow?

Yes. The adjustment escrow secures a working capital true-up that resolves on the schedule the agreement sets, commonly within ninety to one hundred twenty days after closing. The indemnity escrow secures representation breaches surfacing over a year or more. Different exposures, different clocks, different release dates. Combined, a short accounting dispute freezes money that should already be back.

Separation is standard where data exists. In the ABA’s 2023 study, 53 percent of deals used a separate escrow for the post-closing adjustment; in the 2025 study, 42 percent of agreements with one made it the sole recourse for the adjustment. Those deals are larger than yours, but the structure transfers.

The seller’s version: the adjustment escrow is sized to your working capital’s actual volatility, releases when the true-up becomes final, and is the buyer’s only recourse for a downward adjustment. The indemnity escrow is untouchable for adjustment claims.

Data: ABA Private Target M&A Deal Points Study, 2023 and 2025 editions.

Who pays tax on escrow interest, and does the escrow delay your tax bill?

Someone owes tax on escrow income currently, and the agreement should name who. Congress directed that no provision of law be read as exempting an escrow or similar fund from current income taxation. As of August 2026, the regulations issued under that direction reach settlement funds and like-kind exchange escrows, not sale-of-business escrows.

Escrows used in selling property were proposed for coverage in 1999; that part was withdrawn in 2006. Your agreement must allocate what the regulations do not. If it is silent, you can get a Form 1099 for interest on money you never touched. Fix it: name the tax owner, give the taxpayer identification number, direct the agent’s reporting, and require interest to follow principal.

Timing of gain is separate. IRS Publication 537 (2025) explains that where an escrow imposes a substantial restriction on your right to receive the proceeds, and the restriction serves a bona fide purpose of the buyer, an otherwise qualifying sale can be reported on the installment method. Most indemnity escrows are not drafted to do that, so assume the escrowed amount is taxed at closing unless your accountant concludes otherwise. The publication warns the other way too: an irrevocable escrow established in a later year to pay remaining installments counts as payment of the balance. Installment reporting is unavailable for some assets, and state rules vary.

Law: 26 U.S.C. 468B(g); Treasury regulations under section 468B (T.D. 8459; T.D. 9249, February 7, 2006, partially withdrawing REG-209619-93; T.D. 9413); IRS Publication 537 (2025).

How long should the escrow last, and how should a special escrow be sized?

Match the escrow term to the survival period it secures, to the day. Twelve to eighteen months is the published band for the general indemnity escrow, and at the smaller end expect a buyer to push for longer. An escrow that outlives its survival period is idle money. One that dies first leaves you paying claims yourself.

A special escrow is different in kind. It secures one identified exposure: an unfiled sales tax registration, a pending employment claim, a consent that did not arrive by closing. Size it to the quantified number, not to a convention built for unknown risk. A known 180,000 dollar exposure justifies a 180,000 dollar sub-account with its own release date, not a 900,000 dollar general escrow held longer because the issue exists.

Can the escrow be your only exposure, and how do you compare offers?

Ask for it: the escrow as the exclusive remedy for breaches of the general representations. That turns the escrow into a hard cap funded at closing, with nothing owed from your own pocket afterward. Buyers at this size often resist, and the data showing sole-recourse structures comes from larger insured deals. Ask anyway, then price the answer.

Expect carve-outs to survive: fundamental representations, meaning title, ownership and authority, plus tax and fraud. Do not expect an exclusive remedy clause or a cap to insulate deliberate misstatements. Under Delaware law, public policy bars a seller from using an exclusive remedy or non-reliance clause to escape liability for knowingly false representations in the agreement itself, though non-reliance language can still bar claims built on statements outside it.

Law: ABRY Partners V, L.P. v. F & W Acquisition LLC, 891 A.2d 1032 (Del. Ch. 2006).

Then price the escrow. Escrowed dollars are not cash dollars. Discount them for time and for the chance they never return. The arithmetic below uses an 8 percent discount rate and illustrative recoveries.

Offer B advertises 400,000 dollars more and delivers roughly 280,000 dollars less. Run this table on every offer, and set the recovery assumption yourself. That assumption is where mechanics become money.

What should you do about the escrow in the next thirty days?

Work the escrow before you sign the letter of intent, because that is where the percentage and the period get anchored and where the buyer stops conceding. Four steps, in order, each doable this month. Each converts a later argument into a term you set now.

• Put the escrow in the letter of intent. Percentage, months, third-party agent, automatic release at term, exclusive recourse for general representations.
• Quantify your known issues now. Sales tax exposure, payroll tax items, open claims, missing consents, contractor classification. Each becomes a sized sub-account instead of an argument for a bigger escrow.
• Ask about insurance early, then plan without it. If a policy is available at your size, it moves the percentage and the period down toward the retention. Coverage minimums mean it often is not, so do not build the letter of intent around it.
• Read the escrow agreement as a separate document. Find the release clause, the notice requirements, the partial-claim language, the no-cross-application sentence, and the tax provision. Any of the five missing is your redline list.

Bring the escrow agreement and the letter of intent to Prencipe International together. They are one deal term wearing two documents, and the mechanics in the second decide what the number in the first is worth.