Quick takeaways
- A seller note means you lend part of the price to the buyer, often ten to twenty five percent, usually secured by a lien.
- An earnout ties part of the price to results after closing, which moves risk back onto you.
- A holdback keeps part of the price in reserve for a set time to cover problems that surface later.
- Settle the terms, security and default remedies in writing before the full contract is drafted.
Seller notes
In a seller note you agree to be paid part of the price over time. Notes often cover about ten to twenty five percent of the price, and they widen the pool of buyers who can afford your company.
Ask about the interest rate, the payment schedule, what happens if the buyer misses a payment, and whether the note is secured by a lien on business assets.
Earnouts
An earnout pays you more if the company hits a target after closing, such as keeping a key customer. Buyers use them when a deal has real transfer risk, like customer concentration.
The catch is that you no longer control the company. Define the target, how it is measured and who decides, because disputes over a vague formula are common.
Holdbacks and escrow
A holdback sets aside part of the price for a period after closing. If an unexpected tax or debt shows up, the buyer draws from it. Otherwise you are paid.
Negotiate the amount, the length and the exact list of claims that can touch it.
Bank financing changes the picture
SBA loans can fund many Main Street purchases, but the lender and the seller must close together, and lenders often cap debt near three times cash flow. Higher multiples usually need more cash from the buyer or a seller note.
Reading the fine print
Compare the headline price with what you actually receive at closing. A deal with a high price and a long earnout can pay less in practice than a lower offer that is mostly cash.
What to do next
Have your CPA model how each structure changes your taxes, because installment payments can spread gains across years. Review how a letter of intent fixes these terms.
To see likely terms for a company like yours, request a price opinion.