I've reached a tentative agreement to buy my family's business based on a stream of income for the current owners.
Gross revenue is about $9m with an average EBITA at about $1M.
The company is about 35 years old with every year being profitable.
Here are the terms:
1) Payment equal to the owner's current salary of $100K/year for a period of 25 years (in the form of a note not an employment agreement but if the current owner still wanted to be involved he could be in a non-controlling role)
2) Increase pegged to inflation to preserve buying power for this let's say 4% per year
Year 1: 100K
Year 2: 104K
Year 25: 267K
3) I would like to structure this as note with constant principle payments and increasing interest so both the owner and I can take advantage of the interest deduction
4) If the owner dies before 25 years then the balance of the principle is forgiven.
With this sort of structure the net present value works out well and does not require any upfront capital outlay.
I've looked at different ways of structuring include an ARM type note and an inflation adjusted bond. None of them seem to quite do it though.
Any suggestions would be greatly appreciated.
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