Earnouts Can Be a Win-Win

When selling a business, an earnout is a buyer’s commitment to pay the seller a certain amount of money tied to future performance after a sale. It bridges a valuation gap between what the seller wants out of the business, and what the buyer can safely pay.
Earnouts will probably play a bigger part of deal structure in the months ahead. If business recovers, buyers and sellers both come out winners.
Some people have a negative opinion on earnouts, telling sellers not to expect a dollar of their earnout agreement. In our experience, those fears are unfounded, particularly when agreements are negotiated by an experienced M&A attorney.
Truthfully, buyers would love to pay that earnout because it means their new business is making money. And even if your business is struggling right now, the right buyer will see the potential ahead.