An earn-out is a common structure in business sales where part of the purchase price is contingent on the business hitting specific performance targets after closing. It’s a tool that bridges valuation gaps between sellers and buyers—but it comes with both risks and rewards.
How Earn-Outs Work
Instead of receiving the full payment upfront, the seller receives additional payments over time, typically based on metrics such as:
Revenue
EBITDA or net profit
Customer retention or contract milestones
This structure ensures buyers only pay the full value if the business performs as expected.
Benefits for Sellers
Can secure a higher total price if confident in the business’s growth
Keeps the seller involved to guide the business through the transition
Reduces the risk of undervaluation in uncertain markets
Risks to Consider
Dependent on buyer management after closing
Requires clear and enforceable performance metrics
Potential disputes over calculations or operational control
How BizBroker+ Helps
At BizBroker+, we guide sellers and brokers through earn-out negotiations, ensuring clear agreements that protect your interests and maximize value. Our team helps structure deals that are fair, transparent, and executable.
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