The specific rights will be detailed in the Job Function Email List security agreement that is associated with the promissory note and can involve a number of stipulations including restricting Job Function Email List the new owner's sale of assets, acquisitions, and expansions until the note is paid off in addition to specifying the receipt of quarterly Job Function Email List financial statements to enable the seller to keep tabs on the business. Having an experienced transaction attorney Job Function Email List involved in the drafting of the Job Function Email List promissory note will be essential.
Earn-Outs An earn-out provision Job Function Email List is an excellent structuring vehicle to bridge the gap on a valuation difference between what the seller expects to receive from Job Function Email List a sale and what the buyer thinks a business is worth. Earn-outs are contractual contingent payments in which the purchase price is stated in terms of a Job Function Email List minimum, but the seller will be entitled to additional compensation if the business reaches certain financial benchmarks in the future. Although the benchmarks can be calculated as a percentage of sales, gross profit Job Function Email List, net profit or other figure, an earn-out is most often based on sales (not profits) and is typically tied to increasing revenue over historical levels.
An earn-out is a good way to maximize Job Function Email List the total selling price of the business, especially if the seller is confident of future sales and the new owner's management ability. It is not uncommon to establish a floor or ceiling for the earn-out, and in a down economy, a seller can use an earn-out provision to obtain a value closer to what the business is worth in Job Function Email List a healthy economic climate. Earn-outs are favorable to both the buyer and seller.