Earnout

An earnout is a portion of a sale price paid after closing, contingent on the business meeting agreed performance targets (revenue, retention, or profit) over a defined period. It bridges a valuation gap when buyer and seller disagree on future performance, shifting some risk to the seller. For example, a $1M deal might be $700K at close plus a $300K earnout if revenue holds for 12 months. Sellers should scrutinize how targets are measured and who controls the levers post-sale.