Re: Account worth

[Nomen Nescio <nobody@xxxxxxxxx>]

>Now with that 20% hold back, why 20% ? But not 40 or even 50% ?

Remember the main purpose of the holdback is to protect the buyer against
paying for accounts that are lost for reasons beyond the buyer's control.
If the buyer thinks there's a good chance he's going to lose 40-50% of the
revenue he bought during the guarantee period, he probably won't want to
buy the company in the first place.   So 20% will normally be more than
enough to protect the buyer against normal attrition.  In fact, a seller
with good accounts and good records should be able to negotiate something
less than 20%.  The buyer is also entitled to be paid interest on the
amount of the holdback he actually is paid.  In fact, the IRS expects it.

There are also competitive pressures among buyers as well.  If one buyer
insists on a 50% holdback and a long guarantee period, the seller will
probably go find a more cooperative buyer.