The ins and outs of earnouts – They can seal the deal, but be sure to think it through

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Abstract: It can be frustrating when a seller and potential buyer of a dealership can’t agree on price — but an earnout provision in a purchase agreement can help seal the deal. In an earnout agreement, the seller typically accepts at closing a payment lower than the asking price and maintains an interest in the business. The expectation is that the business will do well enough to compensate the seller with future payments — but this article also explains how to manage the risk that it won’t. A sidebar addresses the appropriate length of a term covered by an earnout provision.