I recently read a blog post about the pros and cons of seller earnouts, which I believe is worth sharing.
It’s a useful article if you’re considering buying or selling a business and you want to explore measures to manage the risks of transfer and protect the value of the business, including delayed or ‘at risk’ payment of part of the purchase price consideration, such as an earnouts.
A timely issue
An earnout is a payment to the vendor which is contingent on the performance of the business or related factors after the sale has occurred.
Often the vendor continues to work in the business during the earnout period and the potential earnout is an incentive for them to maintain or enhance the performance of the business.
Earnouts are a common component of business sales these days.
The Australian Tax Office website also has a page on earnouts which contains an up-to-date explanation of current tax treatments.
If you are looking to buy or sell a business and would like advice regarding business value, earnouts and transaction structures, and also the potential issues and implications relating to capital gains tax, contact the team at JPAbusiness on 02 6360 0360 for a confidential discussion.
James Price has over 30 years' experience in providing strategic, commercial and financial advice to Australian and international business clients. James' blogs provide business advice for aspiring and current small to mid-sized business owners, operators and managers.