Earn-outs explained: getting paid for future performance
Part of the price depends on how the business does after you sell. Here is how that usually works.
An earn-out ties part of the sale price to how the business performs after completion, usually over one to three years.
Why buyers propose them
Earn-outs bridge a gap between what the seller thinks the business is worth and what the buyer is willing to pay up front.
What to watch
- How performance is measured, and who controls the levers that affect it.
- What happens if the buyer changes how the business is run.
- How disputes are settled.
Take professional advice before agreeing to any earn-out terms.