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Seller Notes and Earnouts When the Buyer Pays Over Time

Not every buyer pays the full price at closing, and Georgia Business Brokers Match sees sellers weigh the trade between a higher price and more risk.

Here is how the pieces work.

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In short

  1. A seller note is a loan from you to the buyer, repaid over time with interest.
  2. Seller notes often cover roughly ten to twenty five percent of the price.
  3. An earnout ties part of the price to results after closing.
  4. Both shift risk back to you, so ask what protects you if the buyer stops paying.

What a Seller Note Is

A seller note is a loan you make to the buyer for part of the price. The buyer pays it back over a few years with interest, and you receive monthly payments.

These notes often make up about ten to twenty five percent of the price, though the share varies by deal.

Why Buyers Ask for One

Banks and lenders like to see the seller keep some skin in the game. A note also widens the buyer pool, since some buyers cannot raise the full amount in cash or from a loan.

Deals with seller financing can close faster than deals that depend on a bank, since fewer outside steps are needed.

Protecting Yourself

A note should be secured, often with a lien on business assets, and backed by a written agreement. Ask what happens if the buyer misses payments and whether the owner signs a personal guarantee.

The entity that receives payments may need to stay open for years. See certificate of termination after an asset sale.

What an Earnout Is

An earnout pays part of the price later, only if the business hits agreed results, such as keeping a key customer or reaching a revenue level. It can bridge a gap when you and the buyer disagree about the future.

It also hands some control over the outcome to the buyer, so tie it to measures that you can track and that the buyer cannot easily change.

When Risk Calls for These Tools

Customer concentration is a common reason. If one account supplies a big share of revenue, a buyer may offer a lower upfront price plus an earnout tied to keeping it. Read what buyers ask for during due diligence.

Compare Offers on Net Terms

A higher headline price with a large note can be worth less than a lower all cash price. Ask your broker to put offers side by side after taxes, fees and risk. Request your valuation to see where to start.

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