Earn-out

Part of a sale price paid later, conditional on performance.

What it means

An earn-out defers part of the consideration, payable if the business hits agreed targets after completion.

Why it matters

It bridges a gap in valuation expectations. It also means the seller's money depends on a business somebody else now controls.

What it looks like in practice

Define the metric precisely and protect it: how profit is calculated, what central costs can be allocated, what happens if the buyer changes the business.\n\nSeller protections usually include running the business substantially as before during the earn-out period.

What to watch out for

Earn-outs measured on profit where the buyer controls the cost allocation. Revenue-based earn-outs are cruder and are much harder to manipulate.

Where to get proper advice

A corporate solicitor. The earn-out drafting is where most post-completion disputes originate.