An earn-out is a way to bridge the gap between what you want for your business and what a buyer is willing to pay. In an earn-out, a portion of your business’ sale price is set aside for payment in the future if you reach certain goals set by the acquirer; you’ll need to stay on for a few years as an employee of the acquiring company and lead your team to hit the earn-out goals.
Most owners would prefer all of their cash the day they sell their business and most buyers would prefer to pay the entire amount contingent on future performance. Deals get done somewhere in the middle, where some portion of your money is paid up front with another slice available if you meet your goals as a division of the acquiring company.
Traditional earn-outs are typically tied to the profitability of your company as a division of the new owner and they are fraught with problems. Buyers may thwart your ability to hit your targets in any number of ways. In this episode of Built to Sell Radio, you’ll hear from Mac Lackey, a veteran entrepreneur who took an alternative approach to structuring the earn-out that put up to 80% of the sale of his company, Kyck.com, at risk.
How to Minimize Your Earn-out
Generally speaking, the higher your Value Builder Score, the lower the proportion of your deal that will likely be at risk in an earn-out. To get your score, take 13 minutes and complete the Value Builder questionnaire. Get Your Value Builder Score Today
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