The decision to depart from a company before the completion of the earn-out period—where a portion of the sale price is contingent on the company achieving certain milestones or performance metrics—requires careful forethought and consideration. As noted in Part 1 of this blog, detailed discussions at the pre-sale phase around the terms of an earn out will help to protect founders.

Should a founder contemplate an early exit, several crucial aspects need attention:

1. Financial Implications:

Exiting before the earn-out period might impact the amount received from the sale. Understanding the financial implications, such as forfeiting potential earnings linked to the earn-out, is crucial. Consulting legal and financial advisors to comprehend the ramifications is highly recommended.

2. Contractual and Legal Obligations:

Reviewing the terms of the relevant agreements is essential. Exiting early might involve legal considerations, especially regarding any non-compete clauses, non-disclosure agreements, or other contractual obligations. Ensure compliance with all legal aspects before making a decision.

3. Communication and Negotiation:

Open dialogue with the acquiring company is pivotal. Expressing the intent to leave before the earn-out period and negotiating an amicable departure can mitigate potential conflicts or legal disputes. Discussing the departure plans with company leadership in a transparent manner is key. However, it’s important to take legal advice prior to advising the acquiring company of the intent to leave.

4. Professional Reputation and Relationships:

Leaving before the agreed earn-out period might influence professional relationships and reputation. Maintaining a professional approach during the departure process and ensuring a smooth handover can help preserve goodwill and networks for future endeavours.

5. Personal and Career Objectives:

Assess personal and career goals before an early departure. Whether it involves starting a new venture, taking a break, or pursuing different interests, aligning these objectives with the decision to leave early is crucial.

6. Transition Planning:

Planning an early departure necessitates a well-thought-out transition strategy. Identifying and grooming a successor, ensuring critical knowledge transfer, and supporting the team's stability post-departure are vital components.

7. Emotional Preparedness:

Leaving a company prematurely after a sale can be stressful. It's important to be mentally prepared for the change, acknowledging potential feelings of uncertainty and loss, while also embracing new opportunities that lie ahead.

8. Continued Involvement and Support:

Even with an early exit, founders can offer ongoing support in advisory roles or through a consulting capacity, if agreed upon. This can provide a smoother transition and preserve their legacy within the company.

Deciding to depart before the earn-out period is a significant step that requires comprehensive evaluation of financial, legal, personal, and professional implications. Clear communication, careful planning, and strategic negotiations are crucial in navigating this decision while safeguarding the interests of all parties involved. MBM Commercial offers a Post Sale service for Founders who are looking to exit early. You can read more about this in our Post Sale Services flyer and contact us to find out how we can help you navigate an early exit while protecting your interests. Ultimately, a well-managed and amicable departure, even before the earn-out, can set the stage for future endeavours and maintain a positive professional legacy.