JPAbusiness

If you are considering selling a business at the larger end of the SME market, with a longevity of orders and forward earnings, it’s important to consider the concept of earnouts and contingency payments, because it will come up from interested parties.

It’s also important to recognise that earnouts as part of the purchase price have capital gains tax implications, so expert advice is essential.

In 2014 we published an eBook titled Capital Gains Tax – Issues to consider when selling a small to mid-sized business. This eBook drew on extensive experience, including that of our guest contributor Michael Pisani, partner at Chapman Eastway, and remains one of our most popular publications to date.

Given the far-reaching scope of Capital Gains Tax (CGT) and the ever-evolving nature of taxation laws, in 2017 we released Capital Gains Tax 2.0 – Issues to consider when selling your business. The new eBook did not replace the original, but instead complemented it.

Over the past few months, the JPAbusiness team has been reviewing and updating the information in both eBooks, to reflect the most recent changes in Australian tax policy.

If you are considering selling a business at the larger end of the SME market, with a longevity of orders and forward earnings, it’s important to consider the concept of earnouts and contingency payments, because it will come up from interested parties.

It’s also important to recognise that earnouts as part of the purchase price have capital gains tax implications, so expert advice is essential.

Earnouts and contingency payments are typical features of business sales in the Australian, European and US corporate markets.

In our work in Australia, we are seeing them increasingly used in the small to medium-sized enterprise (SME) market and we’re often involved in structuring these deals, either from a purchaser’s or vendor’s side.

If you are considering selling a business at the larger end of the SME market, with a longevity of orders and forward earnings, it’s important to consider the concept of earnouts and contingency payments because it will come up from interested parties.

It’s also important to recognise that earnouts as part of the purchase price have capital gains tax implications, so expert advice is essential.

I recently read a blog post about the pros and cons of seller earnouts, which I believe is worth sharing.

The blog post was written by M&A specialist Dave Kauppi from MidMarket Capital, Inc, which is based in Chicago, USA. (You can click here to read Dave’s post.)

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.