How Is An Earn Out Used In A Business Sale?

As a Buyer can I defer some of the purchase price?

It is possible to negotiate deferred payments. This mechanism is used where the buyer is uncertain that targets can be achieved, for example, turnover for the purposes of an asset sale. It is much more common in a sale of shares, however, and is usually used for “earn-outs”.

What is an earn-out?

An earn-out clause stipulates that the sale price is to be based on the company performance after completion. For example, it might be stipulated that if the business makes net profits of £X after one year then the buyer will pay the seller a further £Y consideration.

About the Author: Martin Truman

Solicitor and Managing Director at Truelegal Solicitors: Martin has spent 25+ years advising entrepreneurs and business owners. With over 3,100 small and mid-size business sale and purchase transactions completed under his watch, he is confident that Truelegal has the toolkit to deal with most issues that buyers and sellers of UK businesses encounter. Realising the full value of a business for its owner on exit is his passion.