• At the outset, every seller should be counseled about the risks of an earnout, since new management will be responsible for the achievement of past forecasts.
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The founder and his family will get a possible earnout of up to £3m.
»The company will need to conserve cash this year for the last of its earn-out payments on 1980s acquisitions.
earn-out provisions — условие выплаты по результатам
earn-out agreement — договоренность о выплате по результатам
With an earn-out, the seller now has a huge interest in seeing you maximize profits and use the most aggressive accounting tactics to do so.
The vendor may also be concerned that when the earn-out payment is due, the buyer might be unable to pay.
The financial goals are usually stated as a percentage of gross sales or earnings.
Say an entrepreneur selling a business is asking $2,000,000 based on projected earnings, but the buyer is willing to pay only $1,000,000 based on historical performance. An earnout provision structures the deal so that the entrepreneur receives more than the buyer's offer only if the business achieves a certain level of earnings. The exact numbers would depend upon the business, but in this example a simplified provision might set the purchase price at $1,000,000 plus 5% of gross sales over the next three years. The earnout thereby helps eliminate uncertainty for the buyer.