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Definition
An earn-out is a form of deferred consideration where a portion of the purchase price is contingent on the acquired business achieving agreed performance targets — profit, revenue or retention — over a defined period after completion.
In plain terms
Part of the seller's payout is 'earned' only if the business performs. It bridges a gap in what buyer and seller think it's worth, and keeps the seller invested in a smooth handover.
Why it matters for your company
For a buyer, an earn-out reduces upfront funding and shares risk. Factor the potential payments into your funding plan. See funding a business acquisition.
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