Has anyone sold anything on a performance note?
I am thinking about selling a business on a PBN with the following terms.
10 year term for 50% of the profits then 25% for the next 5. Does anyone have any language example for this type of note?
Thanks in advance
John, I’m thinking that one of the greatest risks might be that your buyer has some undefined incentive to under-report whatever varying profits that will be made. Different types of businesses offer different kinds of opportunities for such under-reporting. (As an example, the movie, recordings, and entertainment industry is notorious for finding such ways in order to skin their performers.)
I don’t know what kind of business you’re considering selling, nor is it any of my business. Whatever level of under-reporting opportunity risk there might be in your line of business needs to be matched in the language of your performance note by a required auditing process sufficient to protect your interest. Skinning the IRS is one thing; skinning you would become very personal. Failure to execute that risk-commensurate level of diligent auditing should have severe consequences — in your favor.
If your selling the business, than you know what the business can produce. I would say stay in by getting your hard costs out as a down payment or “buy-in” and performance base royalties forever. Require quarterly reports and a cpa certified K-1 at the end of each year.