Compare Cash at Closing With an Earnout Offer

Write down what is paid and what is promised

Separate cash at closing, a fixed seller note and a contingent earnout. A note depends on repayment; an earnout also depends on the agreed future performance conditions.

Do not count the maximum earnout as guaranteed proceeds. Ask how likely the targets are and who controls the decisions that influence them.

Review the parts of an earnout you cannot control

The contract needs clear definitions, measurement periods and reporting rights. Changes to staffing, pricing or cost allocation can matter when payment is based on future results.

Your attorney should review dispute procedures and what happens if the buyer resells or changes the business. A simple phrase about future profits can hide a difficult collection problem.

Price your remaining work alongside the payment

If the buyer needs you to preserve customers or train managers, put a schedule and limits in writing. Distinguish required transition help from additional paid consulting.

A long transition may restrict your next plans. Consider that obligation alongside any minority ownership, note or performance payment you retain.

• Compare immediate cash after debt, fees and reserves.
• List each future payment and its conditions.
• Ask counsel to review security, remedies and reporting.

Check the tax model before accepting exclusivity

Asset allocation and payment timing affect tax treatment. A deferred payment does not automatically defer every tax; have your CPA model the actual structure.

An independent valuation and a competitive buyer discussion can help you assess the terms. Avoid granting a buyer exclusivity before you understand the price and the risks attached to it.

Keep the sale moving

• Understand retention risk
• Plan for escrow withholding
• Discuss your sale goals

Use the valuation form to outline your sale, or call (408) 555-0179.