I have a 12 month consulting agreement with the seller and 5 year non compete after. Are there any typical or recommended earnest structure to incentivize seller to hit revenue milestones or other metrics? What worked best for you? This is a light manufacturing business. Revenue growth have slowed to 6% from double digits. Plan is to increase higher margin business and resume double digit revenue growth.
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While in theory an EBITDA/profitability earnout may seem ideal on the surface, there are many challenges/headaches that can come up with this approach and it can get complicated quickly when it comes time to figure out how much earnout is due. I have seen debates around the timing of new critical hire(s) because of the impact of the salaries on the profit line as it relates to the earnout measurement period, and you can also find yourself and the seller debating accounting methodologies and things like payroll/vacation accruals, inventory reserves, costing methodologies, prepaids/general accrued expenses, etc. some of which are not black and white and all of which impact the EBITDA line and how much you will have to pay them. Keep it simple, easy to measure, and tied to the behaviors you want from the seller during the transition period.