The Dangers of Accepting an Earn-Out When Selling Your Business

If you are an entrepreneur, start-up, or small business, it is highly likely that you looking to sell all or part of your business.  In my career, I have worked with numerous entrepreneurs, start-ups and small businesses who consulted me about a deal proposal they received.  In the majority of these cases, the first proposal that the client received was not for a fixed amount of money but actually involved the payment of money in the future upon the occurrence of some sort of milestones--often when the client was later working as an employee or consultant.  If I am retained about an acquisition, it is obviously my job to raise concerns about the risks associated with this type of transaction, but it's common for the client to become unhappy with me for articulating the concerns.  Why?  Well, the client often feels like I am going to stand in the way of the deal being closed and that I'm not fully considering what is being offered.  If this sounds familiar,  I encourage you to consider this article by Forbes, which provides some great insights as to why the concerns that a law firm may have about this type of deal are very legitimate:

Selling Your Business? Why Earn-Outs are a Mistake