What an earnout is
An earnout is the part of the price that's paid later, based on how the business does after the sale. In billing, it's usually tied to how much revenue your clients bring in over the next one to three years.
Why buyers use them
A billing company's value is its client relationships, and clients can leave. An earnout shares that risk between you and the buyer.
What to negotiate
- How much is up front. More cash at closing means less risk for you.
- What's measured. Revenue from your clients is simpler and fairer than profit, which the buyer controls.
- How long it runs. Shorter is usually better for you.
- What happens if the buyer raises prices or changes service and clients leave as a result.
- How you'll see the numbers, and how often you're paid.
- What happens if the buyer is sold before the earnout ends.
A simple example
Say your book brings in $300,000 a year. An offer might pay part at closing and the rest over two years, based on the share of that revenue still with the buyer. If 90% of clients stay, you get 90% of the deferred amount. The numbers will differ for every deal. The point is to understand where the risk sits.
Have a lawyer review any earnout language before you sign. Small wording changes matter a lot here.
This is general information, not legal, tax or valuation advice. Talk to your own lawyer and accountant before you sell.
Our promise to sellers
How we'll treat you and your clients
- We sign an NDA before you share client names or numbers.
- Your clients hear about it from you and us together, after signing. Never before.
- Every term, including how and when you're paid, is written out in plain English before you sign.
- Your clients' fees don't go up for at least 12 months after the handover.
- If you're selling only your anesthesia accounts, we won't approach your other clients. We'll put that in writing.
- If we're not the right buyer, we'll tell you quickly and point you somewhere better if we can.