redactedHow can earnouts and vendor notes protect your Canadian business sale amid tariffs? For Canadian owners with revenues between $5 million and $50 million, the shadow of U.S. tariffs looms over export-dependent operations — squeezed margins, disrupted supply chains and uncertain revenue. Rather than waiting for the storm to hit, you can sell now and structure a deal that shares the risk. Earnouts and vendor notes (seller financing) bridge the valuation gap between your optimistic projections and a buyer's tariff-wary caution, letting you capture upside while giving financial and strategic buyers the downside protection they want. Why your exit can't wait — under the International Emergency Economic Powers Act (IEEPA), U.S. tariffs of 25% hit broad swaths of Canadian exports in March 2025, escalating toward 35% by August, with Canada's counter-tariffs on $60 billion of U.S. goods and a projected 0.1% to 0.2% drag on GDP. In manufacturing, autos and resources, EBITDA forecasts become unreliable, so strategic buyers fear eroded synergies and financial buyers see compressed multiples — leading to stalled deals or lowball offers. Earnouts — defer 10% to 30% of the price, paid only if the business hits predefined post-closing milestones: - Protect your upside if tariffs ease through court rulings or a new CUSMA deal - Ease buyer hesitation by capping exposure to "what ifs" - Keep them simple and measurable; earnouts fail 20% to 30% of the time from poor drafting, so include audit rights and clear definitions of "extraordinary" costs Vendor notes — loan the buyer 10% to 40% of the price, repaid over three to seven years at 5% to 8% interest: - Buy time for supply-chain diversification as stability returns - Use amortizing or interest-only structures, a first lien on assets (subordinate to bank debt), prepayment options, and default triggers with tariff carve-outs (e.g., no default if EBITDA drops 15% due to verified duties) Hybrid example — for a $20M business: $14M cash at close, a $3M vendor note (five-year, 6%) and a $3M revenue-based, tariff-adjusted earnout. Negotiation must-haves — model tariff scenarios, use a Canadian M&A lawyer versed in IEEPA, plan tax (earnouts often as capital gains, notes as interest income), and retain a capped consulting role. Key facts: earnouts and vendor notes amid tariffs - Earnouts defer 10%-30% of price to post-closing milestones; vendor notes loan 10%-40% over 3-7 years at 5%-8% - U.S. tariffs (25% to 35% in 2025 under IEEPA) compress multiples and stall deals - Earnouts fail 20%-30% of the time from poor drafting; audit rights and clear definitions are essential - Hybrid example on $20M: $14M cash, $3M vendor note, $3M tariff-adjusted earnout If this content was useful, the rest of the Selling Your Canadian Business library is one click away. Visit redacted for a monthly newsletter, audio podcast, and video interviews with Canadian advisors. Subscribe now to The Canadian Exit Briefing for exclusive articles, guides and reports written for Canadian business owners and their advisors. Pass this article along to another owner who is working through the same questions. Disclaimer: This article is for general informational purposes only and does not constitute legal, tax or financial advice. Consult qualified advisors regarding your specific circumstances. redacted