If you’re thinking about selling your business, particularly in service-based sectors like agencies, understanding the ins and outs of earnouts is more important than ever. In today’s market, earnouts are becoming a non-negotiable part of deal structures, often representing anywhere from 40% to 80% of the total sale value. But while they can be a powerful tool, they can also create risk, frustration, and even derail your deal if not handled correctly.
In the video below, we dive deeper into the realities of earnouts – what to watch out for, how to structure them wisely and the costly mistakes you should avoid.
Some of the key takeaways include:
Don’t separate price and terms. The way your earnout is structured, and worded, can determine whether or not you actually see that money.
Be realistic with your KPIs. Over-promising future performance might help you close the deal, but it can backfire when it comes time to earn what you’re owed.
Watch for control clauses and integration friction. How much say will you have in commercial decisions? How much work will integration require? These factors directly impact your ability to meet earnout goals.
Beware founder burnout. Long earnout periods under pressure can wear you down and cause you to exit early – before your earnout is fulfilled.
Negotiate midpoint payments. Don’t wait until the very end. Secure clear, staged payments that reward performance along the way and lock down exact timelines for when the buyer must pay.
Get legal precision. The wording in your agreement is where deals are won or lost. A good lawyer will more than earn their keep here.
Selling your business is a huge milestone but getting full value from your sale requires careful planning and crystal-clear terms. Watch the full video to make sure you’re setting yourself up for success.
