Has anyone agreed to a profit-sharing strategy with a seller?
October 18, 2024
by a searcher from University of Pennsylvania - The Wharton School in New York, NY, USA
I am currently evaluating a deal in which the owner is willing to spend a year or two as a consultant to help build a new revenue stream for the business that would benefit from his niche production experience. To align incentives, his pay would be more closely tied to profit-sharing than a high hourly rate, and he would play a key role in the logistics of a new service we provide to clients and onboard someone to replace him.
Has anyone done something similar? I want to ensure that while he stays as part of the business, he is compensated if this service succeeds and motivated accordingly. It would be great to learn about any clauses others considered for this type of compensation.
from The University of Chicago in Philadelphia, PA, USA
- Stick to a 1 year arrangement. That should be enough time for them to deliver on the additional growth. 2 years is too long - for them, for you, and for the organization
- Tie it to revenue or gross profit on the service line, but not EBITDA. EBITDA-based incentives with sellers technically align common goals and can work, but lead to a lot of friction once you start making changes to build the business (ex: a new hire that the seller now thinks is going to take away from their target).
feel free to reach me at redacted to discuss further
from University of New Haven in Cromwell, CT, USA