Talk to me about Earn outs BT

One quick question.... is the seller active in the business now, will he/she be post transaction, and will you be active in it post-transaction?

I think earn-outs are particularly good whenever there's any doubts about the projections and future results. They allow the seller to possibly capture value if the projections turn out to be accurate, yet protect the buyer in case they don't.

It would be easier for us to comment if you could share what sort of business. However, I'd encourage you to be focused more on operating profits or cash flow than on revenues. You don't want the seller to be able to slash prices to meet a revenue goal. Also, I would say you need to be very specific about the rules as to how the business will be operated during the earn-out period. You don't want the seller be able to neglect investment in the business to pump near-term profits if you're hoping to own the business for the next 20 years....

@MLJ:
Yes, the current owner is and will continue to be active, yet now be playing 'second fiddle'.

Essentially, he wants me to take over the business but, obviously, wants to be properly compensated for the hard work he's done.