An earnout is a deal term in which part of a business's purchase price is paid later only if the business meets agreed targets after closing, such as revenue, earnings or client retention over a set period. The purchase agreement defines the measures, the period, how results are calculated and what happens if the buyer changes how the business is run.
Why it matters for owners
For a selling owner, an earnout shifts part of the price into the future and ties it to results the owner may no longer fully control, so the definitions deserve close review with counsel.
