Why you might be left waiting for your sale money

By Kerry

10 May 2017

By Matthew Catterall, Solicitor, Taylors As a seller, most company owners are primarily concerned with the price to be paid by a prospective purchaser. However, the ‘headline’ price agreed can differ significantly from the cheque that you receive on completion. It is important to have in mind, when considering any offer that has been received for your company, the type of offer that has been received, the period over which that offer will be paid and how secure those future payments (if any) will be. The simplest form of offer is a straightforward cash deal, all payable on completion, but what complexities can arise? Here are a few key points to consider:1. Deferred consideration: the payment of some, or all, of the consideration over a period of months (often years) from completion;2. Security: if consideration is deferred, how confident are you that the buyer will pay? Security is taken to ensure that the buyer complies with his obligations.3. Escrow: part of the consideration due can be held in a trust account, until such time the Buyer is satisfied that there are no serious issues with the company (or following a set period of time with no claims), following which additional funds are released to the seller;4. Earn Out: where a business has been sold on the basis of projected future growth, buyers are keen to tie in a seller to that promised income. An earn out is a process by which an additional element of consideration is payable only when certain targets are met by the company post-sale These are the most basic issues to be considered and many deals will involve much more complex arrangements, so if you are contemplating either a sale or a purchase, seek legal advice before committing to a deal whose bottom line might not be as attractive as you first thought.

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