Cash on Completion

This is the preferred option for many sellers. Cash on completion works in favour of those who are looking for a clean exit – those going into retirement for example, or someone who is in ill health. Once the company is sold, the buyer gains immediate ownership while a handover period is usually agreed on by both parties. Payment of the transaction is settled once the handover period is complete

Deferred Payments

With deferred payments, a proportion of the price is paid after completion of the sale; on a monthly, quarterly or annual basis. This allows the buyer to pay for the transaction out of future profits, rather than handing over too large a sum at any one time. By accepting payments over a certain amount of time, the value of a client’s business can often increase.

Earn Outs

An earn out is when an initial sum is paid upon completion and then additional performance-related payments are made subject to certain caveats. Further payments are often linked to future growth and may require the seller to remain in the business for a period of time in order to assist in meeting the agreed criteria. This type of transaction would also allow the buyer to finance the deal from future profits. It can also involve clawback agreements – where a seller has to return some of the monies paid if the business fails to perform.

Investment/Elevator Deals

This type of deal allows owners of growing businesses to essentially ‘de-risk’, and take a proportion of the cash ‘off the table’ by selling a percentage of the company. Typically, such owners would remain involved alongside the incoming investor so the business can grow further. Often, the owners exit at a future stage with a ‘smaller piece of a much larger pie’. Sometimes also known as ‘slavery’ – some investors prove themselves to be complete psychopaths and attempt to flog the owners to death in order to increase the turnover and sell the business on at a profit. Similarly it can also be the path to a very comfortable existence if you find the right investor!

Contact us for advice.