Glossary
Earnout
An earnout is part of the purchase price that is paid only if the business meets agreed targets after closing, such as revenue staying above a level or a key customer remaining for a year.
Earnouts bridge disagreements about what the business will do in the future, especially when a large customer or recent growth is uncertain.
The trap: vague definitions. If the target, measurement method and buyer's obligations are not precise, earnouts lead to disputes. SBA lenders also restrict earnouts in financed deals. A seller note is often simpler.