Earnouts in an Arizona Business Sale
Eddy Roche, Associate Broker · AZ license BR579487000 · HUB AZ / Sunbelt Arizona
An earnout ties part of your payday to what happens after you hand over the keys. That can bridge a price gap — and it can leave you arguing about numbers you no longer control. Here's how I explain it before anyone falls in love with the structure.
What an earnout is
An earnout is a deal term. Part of the purchase price is paid later, only if the business hits targets you and the buyer write down before close. Cash at close is cash. The rest waits on results you may not run.
The purchase agreement has to name the metric, the window, and who reports the numbers. If those stay fuzzy, you are arguing later about a shop you already sold.
Earnout vs seller note
A seller note is usually fixed principal and interest. You know what is owed. An earnout depends on future results. Different risk.
The note path is on seller financing in Arizona. Buyers sometimes mix both. I still treat them as separate risks. A note can default. An earnout can be missed because the buyer changed how the shop spends.
What gets measured
Revenue is the simplest number. It is also easy to move if the buyer stops marketing. Gross profit, EBITDA, or SDE can sit closer to what you sold. They also give the buyer more room to load expenses that kill the payout.
I do not invent a formula on this page. Definitions and math belong in the purchase agreement. Counsel should scrub them before anyone signs.
Buyers reach for this structure when they do not believe the forecast, or when the file is owner-dependent and they want you aligned through transition. More on that risk is on owner-dependent businesses. What actually transfers can change the metric too. See asset vs stock sale in Arizona.
Why disputes happen
Fuzzy metrics. Buyer control of expenses that kill the earnout. Short measurement windows. Weak reporting rights. You sold the keys. They run payroll. If the agreement does not say how add-backs work, you will fight about them.
This structure often shows up first in the letters of intent in Arizona. An LOI is not the purchase agreement. The definitions still have to survive into the APA.
Valuation first
I still price on SDE and transferability first. An earnout is structure, not a substitute for a defensible asking price. Send the basics. I look at the file and tell you whether this term even belongs.
The worksheet that starts that conversation is Value My Business.
Across Arizona
I work across Arizona. Restaurants, bars, service businesses, and contractors. I set structure on the file in front of us, not on a slogan.
I am Eddy Roche, Associate Broker, Arizona license BR579487000. The office is 4745 N 7th St, Phoenix, AZ 85014. Hours are 9AM–8PM every day including weekends. Call (480) 405-3200.
Related reading: seller financing in Arizona, asset vs stock sale in Arizona, owner-dependent businesses, and letters of intent in Arizona.
Frequently Asked Questions
What is an earnout?
A deal term where part of the purchase price is paid later based on the business hitting agreed performance targets after closing. Definitions and math belong in the purchase agreement.
How is an earnout different from seller financing?
A seller note is usually fixed principal and interest. An earnout depends on future results. Different risk. See seller financing Arizona for the note path.
Why do buyers propose earnouts?
To bridge a price gap when they do not believe the forecast, or when the business is owner-dependent and they want the seller aligned through transition.
What should sellers watch for?
Fuzzy metrics, buyer control of expenses that kill the earnout, short measurement windows, and weak reporting rights. Counsel should scrub the definitions.
Do earnouts replace a real valuation?
No. I still price on SDE and transferability first. An earnout is structure, not a substitute for a defensible asking price.
How do I start?
Valuation and structure conversation at bizsalesguy.com/value-my-business or (480) 405-3200. Eddy Roche, Associate Broker BR579487000.
Price the file before the structure
No obligation. I look at the numbers and call you. Across Arizona.