Earn-out and deferred payment: how deal payment is structured

The price of a deal is not only a number. When and on what terms you receive the money matters too. Two deals at the same price can carry very different risk for the seller.

The common structures

• full payment at closing;
• instalments: part of the money is paid later on a schedule;
• an earn-out: part of the price depends on future results, such as revenue or profit over 1–2 years;
• a retained part of the price to cover the buyer’s claims (escrow or holdback).

Why a buyer wants it

It lowers their risk when they are not sure the profit will hold after the owner leaves. The stronger the owner dependency and the customer concentration, the more often a buyer asks to defer part of the price.

What a seller should check

• exactly how the earn-out metric is calculated and what it includes;
• who runs the business in that period: the seller needs a way to influence the result;
• what secures the future payments;
• what happens if the buyer changes the course of the business and the result falls;
• the tax consequences of deferred payments.

Common mistakes

• accepting a vague metric the buyer can read in their own favour;
• handing over control while staying responsible for the result;
• not writing down how disputes about the calculation are resolved.