How to Structure Earnouts, Seller Notes & Creative Financing in Business Sales

Business sales don’t always fit neatly into a simple “cash at closing” formula. Especially in today’s market, deals often need a little creativity to bridge the gap between what the seller wants and what the buyer can comfortably finance.

Here’s a breakdown of the most common creative structures and how they actually work in the real world.

Seller Notes: The Most Common Bridge Between Price & Reality

A seller note is when the seller finances a portion of the purchase price and the buyer repays it over time, usually 3–5 years.

Why it works:

  • Helps buyers reduce their cash injection

  • Sends a strong signal to lenders that the seller believes in the business

  • Keeps the deal within SBA guidelines

Typical terms:

  • 5–6% interest

  • 36–60 months

  • Fully amortized, no balloon

  • No payments until after closing

Seller notes build trust - and they’re often the difference between a deal happening or falling apart.

Earnouts: Great in Theory, Tricky in Execution

Earnouts tie part of the purchase price to future performance. Good for businesses with:

  • Recent growth

  • Seasonal swings

  • New contracts

  • Expanding locations

The biggest mistake?
Making an earnout too complicated.

Keep it simple:

  • One metric (revenue or SDE, not both)

  • One timeframe (12–24 months)

  • One clear payout formula

Earnouts can work - but only if both sides trust each other and the expectations are realistic.

Holdbacks & Escrows: Protecting Both Parties

A holdback is when the buyer puts a portion of the purchase price into escrow, usually 5–10%, for 3–12 months.

Reasons for holdbacks:

  • Outstanding tax items

  • Final inventory count

  • Potential liabilities

  • Training or transition commitments

Holdbacks aren’t personal - they’re practical. And in many cases, they actually protect the seller too.

Why Creative Structures Matter

The best deals happen when both sides are flexible. Creative structures:

  • Bring more buyers to the table

  • Increase lender comfort

  • Keep deals moving

  • Help sellers get closer to their asking price

In today’s market, creativity isn’t optional - it’s smart deal-making.

 

Eric I. Mendelsohn- Business Broker