Reduce The Cost Of An Earn Out By Up To 40%

by an investor from Rensselaer Polytechnic Institute

2 years ago

Here's an idea I've been modeling:

When buying a company using an earn out, structure it as a consulting contract to the former owner. This makes the payments an expense to you which is pretax money and reduces the cost of the earn out by up to 40% (or whatever your tax rate is). The former owner can then use a Defined Benefit Plan or Solo 401`(K) to shelter the income from taxes until they withdraw the funds. 

It's a potential win-win. 

Thoughts?

7 likes
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16 comments

searcher from Humber College

Thank you, Adam, for sharing. We are going through an earn-out structure like that now.

2 years ago | like reply | 0 likes

searcher from The University of Georgia - Terry College of Business

Thank you for posting this. Was not something I had considered but definitely worth exploring in more detail.

2 years ago | like reply | 0 likes

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