"Life is Just Brighter" in a $1.2m Distribution Business

Really, you were treating this as a way to mitigate your own risk because the GM's walking, correct? Yeah, yeah. And so, and, and so the, the way that for the listener, you can, can arrive at, at a, at a SBA allowed risk mitigant is the forgivability of the seller note. So you can, you can structure the seller note or basically say that the seller note will be forgivable so you don't have to pay…

So it's effectively like if you know, your seller note, I think you said was 55,000, you could make seller forgivability where. Oh, well, if we don't hit this certain revenue number, if we, if we don't maintain the same revenue in the first year or two, then we don't, we only have to pay you back half the seller note or none of the seller note.

Yeah, I didn't know, I didn't know about the forgivable seller note. The earn out was advised by my lawyer. But if I knew about the forgivable seller note, I would have probably done that.

Yeah. Yeah. Well, and the only reason I'm highlighting it is again, because under SBA rules, you can do forgivability. So that's, that's a, that's a bonus. But also because the way to think about forgivability versus earn out is earn out is generally like incentivizing the seller to keep pushing and reach new revenue goals under the new ownership.

And forgivability is more defense. It's, it's, it's Risk mitigation. So one is incentivizing growth, the other is protecting downside.

Yeah, the, the and then on the holdback, Joseph, So, so say how that was structured.

The holdback was just a reduction of the cash consideration at close. So I mean I guess if you look at the loan agreement it was like you know, purchase price less, any work working capital adjustments less the holdback amount of 25 grand. And the 25 grand was pretty much tied to any claims on the business from third party people.

So whether it's like you know, if it was, if the business was sued or if it was, you know, there was like vendors claims or whatever because this was a, I did a stock purchase of this business so I had to be extra careful with you know, anything that came from the pre existing entity. So that hold back was you know, instilled just to cover that, that fact.

And, and the way it actually the mechanics of it was just that the 25 grand just sat in your state in the.

Yeah.

So it wasn't like escrow or something like that.