Guide
Earnout Hurdles: Contingent Money Priced As Certain
An earnout is presented as upside. It is a discount to the purchase price that the buyer only pays if targets they largely control are met.
Structure
A typical earnout attaches $200,000 to $500,000 of the headline price to performance thresholds measured over one to three years post-close. Common metrics are collections growth, EBITDA, or new patient volume.
Who controls the outcome
You will no longer control fee schedules, payer contracts, staffing budgets, supply vendors, marketing spend, or scheduling software. The buyer will. Every one of those levers affects the metric your earnout is measured against.
Ask directly whether the metric is measured before or after management fees, corporate allocations, and the buyer's own overhead charges. An EBITDA earnout measured after a corporate allocation the buyer sets unilaterally is not an earnout. It is a formality.
Pricing it
Price your own structure instead of reading about someone else's.
Run the Offer DecoderAssign an honest probability. If achievement requires 8 percent collections growth in a practice that has grown 3 percent annually for five years, the probability is not 50 percent. Then discount the expected value to present at your cost of capital over the measurement period.
A $315,000 earnout at 50 percent odds, discounted two years at 10 percent, is worth about $130,000. Less than half its stated face.
What to negotiate
Push for objective, buyer-independent metrics. Push for a pro-rata catch-up rather than an all-or-nothing cliff. Push for the right to audit the calculation. If the buyer refuses all three, treat the earnout as zero and negotiate the cash price instead.