Deal Structure Comparison Framework: How to Structure Buying a Business in Australia

Nigel Gordon·11 May 2026·Deal Structure & Financing

Deal structure options when buying a business in Australia come down to four interconnected decisions: what you're buying (assets or shares), how you're paying (cash, bank debt, vendor finance, or a combination), how risk is shared over time (earn-outs, holdbacks, warranties), and what the tax consequences are for both parties. Get these decisions right and you've built a deal that works. Get them wrong and you're either paying too much, inheriting liabilities you didn't spot, or watching a seller walk away because your structure doesn't suit their situation.

Most small business buyers in Australia treat deal structure as an afterthought — something the solicitor sorts out. The buyers who get better deals treat it as a negotiating tool from the first conversation.

This framework is part of Module 6 of the Playbook, which covers deal structure and financing in depth. But here's the practical summary.

Why deal structure matters as much as price

A $600,000 deal structured well is better than a $520,000 deal structured badly. That sounds counterintuitive until you understand what "structured badly" actually means in practice.

I saw a deal last year where a buyer paid what looked like a fair price for a commercial cleaning business in Brisbane, but structured it as a share purchase without adequate due diligence on the company's historical liabilities. Eighteen months later, an ATO audit raised a $75,000 tax liability from two years before the purchase. Under a share sale, that belonged to the buyer. Under an asset sale — the structure I'd have recommended for a business that size — it would have remained with the seller.

The core decisions are connected. Your choice of asset sale vs share sale determines who carries historical liability. Your financing mix (bank vs vendor finance vs cash) determines your cash flow from day one. Your earn-out structure determines whether the seller is still motivated after settlement. You can't make each decision in isolation.

The four deal structure decisions

1. Asset sale vs share sale

In an asset sale vs share sale, you're choosing what legal entity you're buying. Asset sales are more common for small businesses in Australia — you buy specific assets (equipment, customer contracts, goodwill, stock) without inheriting the company's history. Share sales transfer the entire company, warts and all.

Asset sale tends to suit buyers. Share sale tends to suit sellers (who can access the 50% CGT discount if they've held shares for 12+ months). Understanding this tension is the starting point for your negotiation.

2. Financing structure

Most buyers below $2M deal size will use some combination of:

Personal cash (equity)
Bank or non-bank lending (senior debt)
Vendor finance (the seller takes a note for part of the purchase price)

Lenders typically fund 60–70% of the purchase price for a well-documented business with 3+ years of trading history. That means a $500,000 business requires roughly $150,000–$200,000 in equity. If you're short on equity, vendor finance can bridge the gap — but only if the seller is willing.

For the full checklist of what banks look for, see the Bank Lending Criteria Checklist.

3. Earn-out and deferred consideration

An earn-out agreement means part of the purchase price is paid over time, conditional on the business hitting performance targets. They're useful when buyer and seller disagree on value, or when the business's future revenue is uncertain.

The trap is complexity. An earn-out that takes three lawyers and an accountant to interpret is a dispute waiting to happen. Keep earn-out metrics simple — revenue, gross profit, or customer retention — and tie them to numbers that can't be gamed.

4. Warranties and holdbacks

Seller warranties are representations about the business (no undisclosed liabilities, no pending litigation, accounts are accurate). A holdback is a portion of the price withheld for 6–12 months as security against warranty breaches.

Holdbacks of 10–15% of purchase price are standard for sub-$1M deals. They give you practical recourse without litigation.

What's in the full framework

The framework below covers each of these four decisions with a scoring matrix, a comparison table, and decision rules for common scenarios — including:

The seller who insists on a share sale (what to do)
The business with no financeable assets (how to structure)
The vendor who wants 100% cash at settlement (when to walk, when to stay)
The earn-out that protects you when the key revenue is the owner's relationships

For financing a business purchase and what lenders actually look for, we've covered the bank side separately. The framework below focuses on the structure decisions that you control.

The Deal Structure Comparison Framework

Use this framework to evaluate structure options for any Australian business acquisition. Score each dimension independently, then use the decision rules at the end.

Section 1: Asset Sale vs Share Sale Decision Matrix

Score each factor 1–3 for your specific deal. Higher total = lean toward asset sale. Lower total = share sale may suit.

Factor	Asset Sale	Share Sale	Score this deal (1–3)
Historical liability exposure	You take none of the company's history	You inherit everything	___
Contracts and licences	Must be novated (third parties must consent)	Transfer automatically	___
CGT impact on seller	Seller pays CGT on each asset at marginal rate	Seller may access 50% CGT discount	___
Stamp duty (varies by state)	Payable on some assets (e.g. land)	Usually no stamp duty on share transfer	___
Financing clarity	Lenders prefer assets as security	Lenders less comfortable with share purchases	___
Due diligence scope	Narrower — just the assets being bought	Broader — entire company history	___

Scoring: Total 15–18 = strong case for asset sale. Total 8–12 = negotiate; explore hybrid. Total 6–7 = share sale may be unavoidable (e.g. key contracts can't be novated).

Decision rule: For businesses under $2M with no significant IP that requires share transfer, default to an asset sale unless the seller's tax position genuinely can't work any other way. Make the seller's CGT problem their problem to solve — not a reason for you to take on extra liability.

Section 2: Financing Mix Calculator

Step 1: Calculate your equity requirement

Item	Your figures
Agreed purchase price	$ ___________
Plus: working capital required	$ ___________
Plus: acquisition costs (legal, stamp duty, advisory)	$ ___________
Total funds required	$ ___________
Bank will fund (typically 60–70% of purchase price)	$ ___________
Equity gap (total required minus bank funding)	$ ___________

Step 2: Assess your equity gap options

Option	Suitable when	Watch out for
Personal savings	You have 30–40% of purchase price available	Depleting emergency reserves
Vendor finance	Seller is motivated and you have a strong relationship	Vendor finance often at 8–10% p.a. — model the cashflow
Family loan	Family can fund without it straining the relationship (an important if)	Formalise it — a promissory note at a documented rate
Equity partner	Deal too large for solo funding; partner has complementary skills	Agree governance and exit terms before the deal, not after
Mezzanine finance	Deal is too large for bank alone; you have adequate cashflow	Higher cost (12–18% p.a.) — only if cashflow supports it

Step 3: Model your debt service

For each financing component, complete this table. Your total annual debt service should be below 40% of normalised EBITDA.

Facility	Amount ($)	Interest rate	Term (yrs)	Annual repayment ($)
Senior bank debt
Vendor finance
Other
Total				$ ___________

Normalised EBITDA: $ ___________ Debt service ratio (total repayments / EBITDA): ____%

If ratio exceeds 40%: the deal is too leveraged at this price. Renegotiate the price, extend the term, or increase equity before proceeding.

Section 3: Earn-Out Evaluation Framework

Use an earn-out when there is a genuine disagreement about future value that can't be resolved another way. Do not use earn-outs as a substitute for proper due diligence.

When earn-outs make sense:

Scenario	Earn-out appropriate?	Notes
Business revenue heavily dependent on one key customer you haven't met	Yes	Tie earn-out to that customer's revenue retention
Seller claims revenue will grow 30% post-sale with no evidence	Yes — at seller's risk	Make growth the earn-out, not base revenue
Business has 3+ years of stable, documented revenue	No	Pay for what exists; don't discount for imaginary risk
Owner is the business and will stay on for 12 months	Depends	Earn-out can align incentives; can also create conflict
Owner is exiting immediately	Rarely	No earn-out if seller has no ability to influence outcome

Earn-out design checklist:

Single metric only (revenue OR gross profit OR EBITDA — not a combination)
Metric is defined precisely in the SPA (revenue = invoiced, not collected? Define it.)
Measurement period is clear (financial year, calendar year — pick one)
Seller has no ability to game the metric (e.g. defer revenue to trigger earn-out)
Maximum earn-out cap is set — you won't pay more than X regardless of performance
Dispute resolution mechanism is documented (independent accountant, not litigation)
Earn-out period is 12–24 months maximum (longer = more disputes)
Seller's post-settlement obligations are clear (can't resign to make targets unachievable)

Earn-out calculation template:

Base purchase price: $ ___________ Earn-out metric target: $ ___________ [revenue / gross profit / EBITDA] Earn-out amount if target met in full: $ ___________ Earn-out amount if target partially met: Pro-rata / Threshold / Nil — circle one Maximum total consideration: $ ___________

Section 4: Warranties and Holdback Structure

Standard warranty categories to include in your SPA:

Category	Key warranty	Holdback period
Financial	Accounts are true and fair; no undisclosed liabilities	12–24 months
Tax	All returns lodged; no outstanding ATO disputes	24 months minimum
Employees	Schedule of employees is complete and accurate	12 months
Contracts	All material contracts disclosed; none in breach	12 months
Assets	Assets are owned by the seller free of encumbrances	6–12 months
Litigation	No pending or threatened claims against the business	24 months
Environmental	Business complies with all applicable environmental laws	24 months

Holdback calculator:

Factor	Your deal
Purchase price	$ ___________
Recommended holdback (10–15%)	$ ___________
Holdback period	___ months
Release trigger	Settlement of all warranty claims / expiry of period
Interest on holdback (if applicable)	___% p.a.

Note on warranty claims: holdbacks only protect you for known, documentable breaches. For structural issues (hidden ATO debt, undisclosed litigation), you need proper due diligence — not just a warranty. A warranty claim requires you to prove a breach and sue to recover. That's expensive and slow. Find the problem before you settle.

Section 5: Deal Structure Decision Tree

Work through each question in order.

Q1: Can the key contracts and licences be transferred via novation?

Yes → proceed to Q2
No (e.g. government licence personal to seller) → share sale likely required; negotiate with seller to solve their CGT via alternative means (e.g. company retained, assets transferred at market value)

Q2: Does the business have significant undisclosed or historical liabilities?

Unknown → complete due diligence before deciding structure
Yes (likely) → asset sale strongly preferred; seller must warrant and indemnify
No → both structures viable; proceed to Q3

Q3: Can you fund 30–40% of the purchase price from equity?

Yes → bank finance + equity; proceed to Q4
No → explore vendor finance for the gap; complete Section 2 debt service check

Q4: Is there genuine uncertainty about future revenue?

Yes (seller's relationships drive revenue) → consider earn-out; use Section 3 framework
No (3+ years of documented stable revenue) → clean deal; avoid earn-out complexity

Q5: Does the seller want 100% cash at settlement?

Yes, and you can fund it → proceed with bank finance only
Yes, but you can't fully fund it → negotiate; offer a higher price with deferred component vs lower price all-cash
No → vendor finance is on the table; use Section 2 to model the terms

Section 6: Common Deal Structure Scenarios

Scenario A: The $400,000 trades business, motivated seller, strong financials

Structure: Asset sale. 65% bank, 20% personal equity, 15% vendor finance over 3 years at 8%. Why: Clean structure. Vendor finance bridges the equity gap and keeps the seller financially invested in a smooth transition. No earn-out needed — revenue is documented and recurring.

Scenario B: The $700,000 cleaning business with a large council contract

Structure: Depends on whether the council contract can be novated. If yes → asset sale. If council won't consent to novation → share sale with strong warranties and 15% holdback. Why: The contract is the business. Without it, you're buying equipment and goodwill at a fraction of the price.

Scenario C: The $250,000 landscaping business where the owner IS the business

Structure: Asset sale. 50% bank, 50% earn-out over 18 months tied to customer retention. Why: You can't verify the revenue without the relationships. The earn-out makes the seller prove the value you're paying for. Keep the earn-out metric simple: retained revenue from existing customers in month 18.

Scenario D: The seller insisting on a share sale for tax reasons

Structure: Negotiate. If you proceed with a share sale, require: extended warranty period (3 years), larger holdback (15–20%), tax indemnity for any pre-completion ATO liability, and a price reduction to compensate for the additional risk you're assuming. Why: You're absorbing the company's history. Price it accordingly.

Quick Reference: Key Numbers for Australian Small Business Deals

Metric	Typical range for SME acquisitions
Bank lending (% of purchase price)	60–70%
Minimum equity typically required	30–40% of purchase price
Vendor finance interest rate	7–10% p.a.
Earn-out period (recommended max)	12–24 months
Holdback percentage	10–15%
Holdback period	12–24 months
Solicitor fees (asset sale, under $1M deal)	$3,000–$9,000
Accountant/advisor fees	$3,000–$8,000
Total transaction costs as % of deal	2–4%

Related resources

Bank Lending Criteria Checklist — what lenders look for before approving a business acquisition loan
LOI Template — the letter of intent is where you lock in the structure before going to contract
Module 6 of the Playbook — deal structure and financing covered in full

Questions about structuring your specific deal? The Leveraged Worker newsletter covers real deals, including the ones that didn't work and why. Subscribe at thatdeal.com.au.

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