![\"Mark](\"https:\/\/ik.imgkit.net\/3vlqs5axxjf\/TW\/ik-seo\/uploadedImages\/All_TW_Art\/TWSTF\/MarkPestronk\/Mark-Pestronk.jpg\" "\\"Mark")
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Q:<\/strong> I have found a buyer for my agency, and I have accepted an offer in principle where the buyer will pay me a percentage of the agency’s revenue over the next three years (i.e., an “earnout”). I realize that anything can happen in the travel industry in that time and that I am taking a risk that revenue may decline and that the buyer may not even be able to pay me. What can I do to minimize those risks?<\/em><\/p>\n A:<\/strong> You could have your attorney try to put two kinds of protections into the agreement. The first kind is intended to limit the losses the business can suffer, and I call these “earnout protections.” The second kind is intended to prevent default by the buyer, and I call these “default protections.”<\/p>\n The first earnout protection is to try to set a floor on the amount that the buyer pays you, no matter how low revenue falls. At the end of the earnout period, the buyer would have to pay you, in one lump sum, the difference between the (lower) payments so far and the (higher) floor amount.<\/p>\n The second earnout protection is a set of limits on the buyer’s discretion to make decisions that would have the effect of lowering revenue, even if the decisions would make the agency more profitable. For example, the buyer would agree not to close your office, not to fire any employees and not to change the agency name, phone numbers or email addresses.<\/p>\n In my experience, floors are fairly rare, whereas limits on the buyer’s discretion are fairly common, but ideally you should try to get both.<\/p>\n For default protections, let me list them in order of the most common to the rarest.<\/p>\n\n