Earnouts

Earnouts are high-risk deal components that buyers use to shift uncertainty back onto founders — most go uncollected. Push for maximum cash at close, cap the earnout below 20–25% of total deal value, tie metrics to revenue not EBITDA, and insist on secured creditor status in writing before signing.

Earnouts are not valuation bridges — they are risk-transfer mechanisms that shift downside onto founders while buyers retain operational control. The most dangerous failure modes are selling under duress, buyer default on deferred payments, and being trapped working for new owners who can quietly undermine the metrics that trigger your payout.

You closed. You got a headline number. 30% of it is an earnout tied to revenue targets over 24 months.

Most earn-outs fail — experienced advisors estimate nine out of ten never fully pay. If you must accept one, keep it to 12 months or less, tie it to metrics you control (gross revenue over EBITDA), and negotiate hard operating covenants that prevent the buyer from undermining your ability to hit targets.

An earnout is money the buyer pays you after closing, only if you hit future performance targets. Founders should treat earnouts as money they will never see — because nine out of ten fail — and negotiate to maximize cash at close instead.

At £2.7M EBIT, a consultancy typically sells for 4–7x, with earnouts covering 20–40% of total consideration over 2–3 years. Treat the earnout as potential upside, not guaranteed purchase price — and negotiate hard to maximize cash at close, because most earnouts are never fully paid out.

Most earnouts fail because founders agree to metrics they can't control after the acquisition closes. To maximize your chances of seeing that money, keep the earnout short (12–18 months), tie targets only to the business unit you directly manage, and negotiate the resources and autonomy you need into the deal documents before signing.