Guide
Holdbacks and Escrow: Your Money, Their Account
A holdback is 10 to 15 percent of the purchase price sitting in escrow for 12 to 24 months, securing indemnity claims that the buyer defines and the buyer asserts.
What it secures
The holdback backstops your representations and warranties: billing compliance, coding accuracy, employment classification, licensure, undisclosed liabilities. If a claim arises during the survival period, the buyer offsets against escrow before pursuing you personally.
The realistic release rate
Most holdbacks release in full or near-full. That is not the same as all of them. Modeling 85 percent expected release with an 18 month delay is a defensible base case, and it means roughly 20 percent of the holdback's face value disappears once you account for both risk and time.
On a $4.2 million deal with a 10 percent holdback, that is $420,000 nominal and roughly $305,000 in present value terms.
Terms that matter more than the percentage
Price your own structure instead of reading about someone else's.
Run the Offer DecoderThe survival period. The basket, meaning the dollar threshold before a claim can be made at all. The cap. Whether the escrow is the buyer's exclusive remedy or merely the first stop. An uncapped indemnity with a holdback that is not the exclusive remedy leaves your personal balance sheet exposed after close.
What to do
Negotiate for a tiered release: half at 12 months, half at 24. Negotiate for the escrow to be the exclusive remedy for all but fraud. And get a real basket, because without one every trivial claim reaches your money.