Commonly referred to as an earnout (NOT sellout), these are the fundamental questions you should ask yourself before thinking about or agreeing to do one.
Do you care about giving away control?
Recognize that this action, for all intents and purposes, removes you completely from control (Why would a 3rd party entity pay you out?!). You should ask yourself the hard question: are you ok with giving away your blood, sweat, and tears to a business direction you disagree with? Kate Spade is a prime example of that happening, and most of us entrepreneurs know what happened to Miss Spade, soon after. Your day-to-day will change drastically, and you need to think about how that fits within your lifestyle and mindset.
Do you care about protecting your legacy?
What is the reason for you to sell? Have you hit your own talent ceiling and wants someone else much more capable to make your business dreams come true? Are you burnt out and what you’re doing feels like a shitty chore? These scenarios happens a lot and have many happy and sad endings, alike! To maximize your chances of success, having a team of trusted colleagues to help you vet the buyer can help protect yourself and the legacy you’re sharing
Qui Bono?
Why is the buyer trying to buy you out? In other words, you need to ask yourself how he/she benefits from this acquisition to fully understand if you’re getting out what you deserve or you’re about to get royally screwed. If your business is worth an earn-out, that means opportunity cost is afoot for all participants. Ever try playing chess with yourself? That’s how you should think, in regards to trying to figure this out.
Where there’s money, there are sharks. Protect yourself at all times, 11ish colelctive!
Hope this helps, leave us a comment if you have any thoughts, questions, or concerns.