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  • Writer's pictureDario Priolo

Avoiding the Pitfalls of Earn-Outs When Selling Your Training Business

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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