Put the earn out mechanics into a clear standalone agreement

The trouble often starts after completion, when the parties realise they meant different things by the same commercial headline. A target based on revenue, profit or customer retention can produce very different outcomes depending on accounting treatment, permitted adjustments and who controls the business during the earn out period. Disputes also arise where the seller expects regular reporting but the contract is light on information rights. A well-drafted agreement aims to spell out the formula, timing, records and challenge process clearly, rather than leaving those points to assumption later.

The agreement will usually deal with the performance metric, the period for measuring it, the formula for calculating any extra payment, and when that payment becomes due. It may also cover how accounts or management figures are prepared, whether the buyer must operate the business in a particular way, what information the seller can inspect, and how disagreements over the figures are handled. If the earn out sits alongside a wider sale agreement, this service stays centred on the earn out wording rather than full transaction management or negotiation strategy across the whole deal.

We usually need the core commercial terms already discussed between the parties, including the target being measured, the earn out period, the proposed formula and any assumptions about how the business will be run after completion. It also helps to know whether the seller will remain involved in the business, what reporting access has been discussed, and whether there is a main sale agreement that the earn out needs to align with. If some points are still open, we can identify the drafting issues that need to be settled before the document is finalised.

Usually not. Earn outs are highly sensitive to wording because the value of the deferred payment depends on how the metric is defined and applied in practice. A generic template may not deal properly with accounting assumptions, buyer conduct after completion, access to records, or the procedure for challenging a calculation. Those are often the points that matter most once the business is under new ownership. A tailored document is generally the better option where the earn out is a meaningful part of the purchase price and both sides want the mechanics recorded with precision.

Timing depends largely on how settled the commercial terms are and whether the earn out needs to fit with other sale documents. If the key points are already agreed, a first draft or review can often be turned around within a few business days. If the deal structure is still moving, the drafting may take longer because the calculation and reporting provisions need to match the latest position. After the first draft, you can request one round of amendments. Broader negotiations, tax input and ongoing representation would need separate scope if required.

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