Earnouts - make them work for you
“We’ll pay you more if the business performs like you say it will”
You’ve received an attractive headline offer, but the earnout targets feel impossible to achieve.
Earnouts are powerful tools used by investors to bridge valuation gaps. They dangle attractive total numbers but protect their downside using overly ambitious growth targets and unrealistic EBITDA thresholds.
This is by design - to protect their returns.
The good news? With the right preparation, you can shift the balance - and the outcome - back in your favour.
There’s room to optimise
Here are a few things to keep in mind as you make your earnout work for you:
Build financial projections - Develop financial projections that reflect what your business can actually achieve, not just best-case scenarios. These should be for your eyes only in the first instance.
Use your numbers strategically - Run your projections through earnout calculators to understand how much of the earnout you’ll likely receive - use these insights to negotiate more favourable milestones.
Be tactical - Share projections with buyers selectively and at the right moments - there is no need to share projections from the outset. .