What Is an Earn-Out?
An earn-out is when part of the sale price depends on future performance of the business after settlement.
Example
A business in Perth sells for:
● $800,000 upfront
● $200,000 additional if
revenue targets are met over 12 months
Why Earn-Outs Are Used
They are common when:
● Buyers and sellers disagree
on value
● Growth projections are strong
● Risk sharing is preferred
Risks
If targets are poorly defined, disputes can arise.
