SMB Acquisition using "sweat equity" - consulting work for equity (acquire over time)

July 31, 2025

by a searcher from New York University in Toronto, Ontario, Canada

So I'm looking at a small manufacturing business, which has been around for 6+ years & they currently have no sales/ revenue for past 6 months, as the 2 founders are old + are purely technical people who don't like sales and they have a 6 figure loan debt. They brought me in to consult on their situation (how to to grow revenue & exit options), however now I'm considering the idea of actually acquiring them by providing consulting services in exchange for Equity + maybe % of revenue over time. I was thinking of doing it in a phased manner - staring with a###-###-#### pilot phase to evaluate if this could be a fit. I really don't want to put down money as I have it locked in other investments. What should I be concerned of in such deals & any better way to structure this?

Reply by a professional
from American University in Irvine, CA, USA

Thanks for the tag, Luke! Stanford, the problem with stock for service arrangements is that it is still a compensatory payment, and can create unwanted employment tax complications both for the company and the recipient. You should carefully work with your tax advisor to confirm what the tax implications will be for this arrangement. We have in the past used a joint venture structure for clients in these situations, where the result is a profit sharing for contributions, rather than the payment of equity-based wages for services. But you should definitely get your CPA involved and have them vet the structure before you sign it. If you'd like to talk further about the legal aspects of the transaction, feel free to DM me here.

Reply by a searcher
from University of California, Berkeley in Seattle Metropolitan Area, WA, USA

Honestly, great way to get a decent price when it's collaborative. Having said that, this is the most common way I see that searchers get screwed out of acquisitions (holes in the agreement, very rarely is a purchase agreement drawn up, and in the cases where there is, it's not buttoned up, as neither party wants to foot the bill for a truly tight agreement). Your services are creating value for the business, so in that regard, sellers often see this and want a higher price, either upfront and/or after the 2-5 year stretch you're trying to pay them out. Happy to chat further.

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