Selling my company

skegyuk

Hi,

I have just been offered a price for selling my company, but the terms seem strange, they are from a US company and are as follows:

Initial offer is a earn out offer due to the short history of the company where it was growing rapidly.
Proposal is monthly payouts 90% of the net profit for 18 months.
Payout on current results (Expecting a growth of 45%)
EUR 5241,18/month (EUR 7599,71/month)
Totals EUR 94.341,24 (EUR 136.794,78)

First lump sum: EUR 2.500,=
6 Month Bonus EUR 5.000,=
12 Month Bonus EUR 5.000,=

If we could make the agreement before the end of this week 6 month bonus would be 7.500,= and 12 month bonus 10.000,=

Total Payout Worst Case (Growth Case)
EUR 106.841,24 (EUR 149.249,78)

Do you think this offer is legitimate, also what should I be careful with and what questions should I ask him before going ahead with this.

Thanks in Advance.

phill99

I don't think you will get the correct advice on here. You need to seek professional advice even if it costs you.

Wobblydeb

An earn out payment isn't unusual. I would advise having at least a proportion paid upfront.

Some other things to consider too:

• How certain are the profits once you have left the business? If the buyer could seriously mess things up (e.g. through incompetence) then what?
• Net profit can be manipulated - do you trust the person buying to be honourable in their use of accounting policy?
• Does your business generate cash in (at least) equal measure to net profit? If not, where will the cash to pay you come from?
• Do you trust the buyer generally, to pay the cash as agreed?
• I would be wary of the "sign this week and you get a higher bonus" offer. Anything like this feels like a pressure technique, stopping you from taking the time to achieve a higher price elsewhere.
• Do you have high below the line expenses (amortisation/depreciation/interest) which means they are doing this on net profit rather than EBITDA?
• Whose laws are you using? English or American?

Ditto the previous poster. Try to get a fixed fee quote from a local firm of corporate finance advisers / accountants familiar with M&A work. The bigger firms will likely be too expensive so look for smaller / local firm.

paddyrg

I would be wary that there is a time element to this. Why offer higher bonuses in order to complete before you have a chance do proper due diligence? If you're effectively giving the company away for a complicated gearing of staged payments, I would want to be absolutely certain of getting all those payments. If something goes awry work the plan you may find the business unsaleable and the 'buyers' set up in competition already knowing all your trade secrets/suppliers/customers etc and kill you for a song.

Really wouldn't do this one alone, and frankly any deal that tried to rush me and pay later for stuff now would get me twitching. It has done you too, or you wouldn't have posted - gut instinct is always worth listening to.

concerned43

Agree with above - wouldn't touch with a barge pole!
If anyone is serious about buying your business they should put the money up front.

paulwf

Just remember the case of Starbucks UK declaring a net loss year after year due to a couple of simple accounting tricks by their US parent company. Personally I'd never accept payment based on net profits.

Dangermac

concerned43 wrote: »

=If anyone is serious about buying your business they should put the money up front.

Really? Earn-outs are pretty common and are the norm in many industry sectors.

Is it different in your experience?

DM

System

Why would a US company use Euros rather than Sterling or possibly USD? Also the format of the numbers is European rather than English/US. Period (.) to split thousands and comma to indicate the decimal place rather than vice versa as used in UK/US


For the pedants, European in this case is intended to mean non-UK

pleasedelete

Do you just own a domain name hat they want?