What Is An Earn Out? How Is It Used?

By Hoke - Last updated: Sunday, August 1, 2010 - Save & Share - Leave a Comment

An Earn Out is a Note or Contract with variable payments. The payments are usually a Percent of Revenues over a fixed period for usually a fixed maximum. It can be used to provide the Business Seller with a higher potential Purchase Price if the business performs well, or conversely reducing the potential Purchase Price if the business performs less well. An Earn Out can be used as a means to motivate the Business Seller to assist the Business Buyer after the sale or as a means for the Business Seller to participate in anticipated growth. It can also be used when the future outlook for the Business is unclear.

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Posted in Financing the Business Sale, Preparing the Business for Sale • • Top Of Page