Earnouts in an Arizona Business Sale: the full guide

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.

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.

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.

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.

I work across Arizona. Restaurants, bars, service businesses, and contractors. I set structure on the file in front of us.