For billing company owners
Revenue share or seller financing when you sell a billing business
How revenue share and seller financing differ when you sell a medical billing business, including who carries which risk if clients leave.
3 minute readBy the Fieldstone Billing teamUpdated
Some small billing businesses are sold for cash at closing, and in other deals the buyer pays the owner over time. There are two common ways of paying over time, and they divide the risk differently. You should know where we stand before you read on. We’re looking to acquire billing businesses, revenue share is our preferred structure, and we don’t offer interest bearing seller notes, so weigh what follows with that in mind.
How seller financing works
The buyer agrees to a price, then pays it to you over time as a loan, usually with interest. Payments are fixed, so you know the amount and the schedule, and they stay the same for the buyer even if clients leave.
The weak spot for you is the buyer. Your payments depend on the buyer’s ability to pay, and collecting from a buyer whose business has declined can be hard, even with security.
How revenue share works
The buyer pays you an agreed share of revenue collected from the transferred clients, for an agreed period. Your payments rise and fall with client revenue. If clients leave, you receive less, and if they stay, payments continue as agreed. No interest is paid to you.
Payments follow revenue, so both sides have a reason to keep clients happy, but most of the risk of that going badly lands on you. Your payments can drop if the buyer performs poorly or can’t pay, and a buyer doing poor work can drive off the clients your payments come from.
As an illustration, say you transfer ten clients and two leave within the year because they’re unhappy with the service after the handover. Under a seller note, the amount you’re owed wouldn’t change. Under a revenue share, your payments fall by whatever those two clients brought in, even though you did nothing wrong.
The two side by side
| Question | Seller financing | Revenue share |
|---|---|---|
| Payment amount | Fixed | Varies with collections |
| Interest paid to you | Usually | None |
| If clients leave | Still owed | Payments drop |
| Your main risk | Buyer can’t pay | Clients leave, or the buyer performs poorly or can’t pay |
| What protects you | Security and guarantees | Handover plan, reporting and audit rights |
What to get in writing for a revenue share
- The percentage, and exactly which revenue it applies to
- How long the payments last, and any cap
- When you’re paid, and what report you receive
- Your right to verify the numbers
- What you must do during the handover
- What happens if the business or the clients are sold on
Spend the most time on the reporting and verification items, because you’ll be relying on numbers the buyer produces.
Legal and tax
How an agreement is drafted counts, and so does what it does in substance. A revenue share should be a genuine contingent arrangement, and it shouldn’t be a fixed loan under another name. Tax rules can also treat parts of deferred or contingent payments differently from how a contract describes them, including treating part of a payment as interest. Ask your attorney and tax adviser before you sign.
Deciding which one suits you
If you need certainty above all, a revenue share may not suit you, and you may want more of the price in cash at closing if you can get it. If your clients are loyal and you’re willing to stay involved during a careful handover, a revenue share can give you and the buyer the same interest in keeping those clients well looked after, though you still carry the risk that they leave anyway.
You can see how our revenue share approach works, including a calculator you can try with your own numbers.
Fieldstone may be a buyer in a sale like this, so read this guide with that in mind. It's general information, and it isn't legal or tax advice.