Academy/Tools/Seller Net Proceeds Calculator/Methodology
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Seller Net Proceeds Calculator — Methodology

Every formula used in the calculator, in plain language, with methodology notes and sources. A formula is a claim the same way a statistic is.

What this calculator does — and doesn't do

The Seller Net Proceeds Calculator takes your deal inputs and produces a named-stage waterfall from headline consideration down to estimated proceeds before tax. Each deduction is labeled and visible — not collapsed into a single number you can't trace.

Taxes are not included in this estimate. This isn't a placeholder for a partial tax feature. A live calculator computes across every input combination a user enters; a caveated estimate of something as jurisdiction-specific, structure-dependent, and timing-sensitive as business sale tax would produce more harm than help. Tax is excluded entirely and stated plainly — not approximated.

For a detailed explanation of how business sale proceeds are taxed in Canada, see How much tax will I pay when I sell my business in Canada?

The waterfall

Headline / stated consideration
± Working-capital / closing adjustment
= Adjusted consideration
− Existing debt payoff
− Advisor fees due at closing
− Legal / accounting / other costs
= Estimated proceeds before tax

Each stage is a named, visible intermediate — not folded into an internal-only variable. Transparency is the product; collapsing stages into a single subtraction chain defeats it.

Formula 1 — Working capital adjustment

adjustment = actualWC − targetWC

Sign convention is locked: when actual working capital at close exceeds the agreed target, the seller receives more consideration (positive). When actual WC falls short of target, the seller receives less (negative). This is the sign that appears most naturally in purchase agreements and is fixed here to prevent the most common signed-calculation bug: reversing the direction and producing a negative adjustment where a positive was intended.

Formula 2 — Adjusted consideration

adjustedConsideration = headlineConsideration + wcAdjustment

This is a named intermediate result, not an internal-only calculation. It appears explicitly in the waterfall because all subsequent deductions — debt payoff, advisor fees, and transaction costs — subtract from this number, not from headline consideration. The deferred consideration reconciliation also uses adjusted consideration as its target.

Formula 3 — Existing debt payoff

debtPayoff = max(0, debtBalance)

V1 models a single lump-sum debt payoff — the amount the seller repays at closing from proceeds. This is seller-side: a use of proceeds, not a source of financing. It must never share a schema field with any future buyer-side acquisition debt, which represents economically opposite cash flows.

Formula 4 — Advisor fee calculation

Returns a structured breakdown, not a single number. The breakdown exists to prevent a specific, real bug: double-subtracting a retainer already paid before closing.

grossSuccessFee = (from fee structure, below) retainerCredit = min(retainerCredit, grossSuccessFee) advisorFeeDueAtClosing = grossSuccessFee − retainerCredit totalAdvisorCost = grossSuccessFee + uncredited retainer

Only advisorFeeDueAtClosing flows through to the waterfall — not grossSuccessFee. A retainer already paid before closing is a sunk cost; crediting it reduces what's owed at close, but it was already paid and should not reduce closing-date proceeds a second time.

Fee structures supported

These are the structures documented in approved Academy content. The calculator mirrors that content exactly.

Flat percentage

grossSuccessFee = consideration × rate

Lehman formula (5–4–3–2–1%)

5% on first $1,000,000 4% on second $1,000,000 3% on third $1,000,000 2% on fourth $1,000,000 1% on amounts above $4,000,000

Source: Lehman Formula (Academy glossary) and How much commission does a business broker charge in Canada?. Both articles reconcile to the $4M convention used here.

Double Lehman formula (10–8–6–4–2%)

10% on first $1,000,000 8% on second $1,000,000 6% on third $1,000,000 4% on fourth $1,000,000 2% on amounts above $4,000,000

Doubles each Lehman tier. Commonly used for smaller transactions. Source: same Academy articles as the standard Lehman formula above.

Flat percentage + minimum fee floor

grossSuccessFee = max(consideration × rate, minimumFee)

Common on smaller transactions where a pure percentage would undercompensate the advisor for the fixed cost of closing. The minimum fee floor is explicit, not estimated.

Formula 5 — Transaction costs

transactionCosts = legal + accounting + other

A simple sum of user-provided figures. No estimation, no benchmarking against deal size. Each component is entered explicitly.

Formula 6 — Proceeds before tax

proceedsBeforeTax = adjustedConsideration − existingDebtPayoff − advisorFeeDueAtClosing − transactionCosts

Uses advisorFeeDueAtClosing, not grossSuccessFee. See Formula 4 for why this distinction matters.

Formula 7 — Deferred consideration reconciliation

When the deferred consideration section is used, the calculator checks whether the components add up to adjusted consideration:

totalAllocated = cashAtClose + sellerNote + earnout + holdback + other gap = totalAllocated − adjustedConsideration

Reconciliation is against adjusted consideration (not headline), because the working-capital adjustment has already moved the target number once. A gap within $1 is treated as clean (rounding tolerance). A larger gap is flagged explicitly — the calculator does not silently accept inconsistent inputs.

Five components are supported (not a rigid four) so a deal with a non-compete allocation, consulting arrangement, or other non-standard component doesn't break the model.

Rounding and precision

All calculations run at full floating-point precision internally. Rounding happens only at display time:

  • Currency values: rounded to the nearest dollar
  • Percentages: displayed to two decimal places

Without a locked rounding convention, the same waterfall can produce numbers that differ by a few dollars depending on where rounding is applied in the calculation chain. Rounding at display time only ensures internal consistency.

What this calculator is not

  • Not a substitute for a real closing statement
  • Not a tax estimate — taxes are excluded entirely
  • Not financial or legal advice
  • Not modeled by province, jurisdiction, or deal structure (asset vs. share)

Every business sale is different. The figures this tool produces are a starting point for conversations with advisors, lawyers, and accountants — not a substitute for them.

Calculation version and review

Calculation version: 1.0
Last reviewed: 2026-08-20

The formula implementations live in lib/dealEconomics.ts (Deal Economics Engine: Seller Proceeds module). The version and review date are updated when any formula changes.

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