Hi everyone,
I am curious to know if anyone here has experience in acquiring a company/business using seller’s financing? (seller’s earn out).
If so how did the business owner react? was it in a positive or negative towards the idea?
Thank you.
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- Seller Note - fixed principal, fixed term, interest
- Seller's Revenue-Based Financing - fixed principal, non-fixed term, interest
- Earnout - non-fixed principal, fixed term, no interest
If you are a good communicator, Seller's Revenue-Based Financing can be a win-win, if combined with other means of payment. It offers the benefits of both a seller note and an earnout while avoiding some of the downsides of either.
Most sellers expect some amount of seller note and dislike earnouts. However, most sellers have no set opinion about a Seller's Revenue-Based Financing.
Beware about earnouts: If you offer some sellers an earnout, they will value it at less than you value it, which means it's simply a waste of money (to the extent it is paid after the seller has transitioned out of the business).