As a training business owner looking toward eventual exit, you likely prefer an all-cash purchase for your company. However, buyers may negotiate for earn-outs to bridge gaps between their offer and your asking price.
What is an Earn-Out?
An earn-out allows a buyer to pay additional amounts to you post-close if certain performance milestones are achieved. For example, if you believe your training firm is worth $15 million based on 25% annual growth projections, but a buyer only offers $10 million, they may agree to a $5 million earn-out over three years if growth stays above 25%.
Why Training Business Owners Don’t Like Them
Earn-outs present several risks for sellers:
You must agree with the buyer on appropriate metrics and detailed definitions. For training companies, revenue or profitability metrics are best.
The buyer controls decisions impacting results post-close. They could make changes undermining earn-out achievement.
Additional terms must be negotiated (length, caps, offsets, etc.)
Building an Attractive Training Firm
To attract all-cash offers and avoid earn-outs, focus on:
Assembling a skilled leadership team not reliant on your involvement
Delivering consistent growth and financial outcomes
Reducing customer concentration risk
Implementing robust systems and processes
This track record will assure buyers your training company will continue thriving without you or earn-out strings attached.
Lean on Your Advisory Team
Work with experienced M&A specialists to negotiate and structure a deal. Protect yourself by avoiding generalist advisors when selling your training business. The proper guidance can help you land the all-cash exit terms you desire.
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