An earn-out means part of the price is paid later, only if the business meets agreed targets after the sale, such as a level of profit or revenue. It's common when the price you'll pay and the seller's expectations are apart, and it keeps the seller invested in the handover.
How it works
- A target and a period: for example, a level of profit over the one to three years after completion.
- A formula: how much is paid if the target is hit, partly hit or missed.
- A cap: usually a maximum total payment.
Why it helps you
- You pay the higher price only if the business performs.
- The seller stays engaged in a smooth handover.
Watch-outs
- Disputes are common. Define the targets and how they're calculated precisely, in the sale agreement.
- The seller may want limits on how you run the business during the earn-out, so they can still hit the targets.
- Your lender will look at it. Earn-out payments usually have to rank behind the main loan and fit within the business's cash flow.
Get advice
Earn-outs need careful legal drafting and have tax consequences for both sides. Speak to your solicitor and accountant.
Last reviewed: 8 October 2026