When founders sell their business, it’s easy to get caught up in the promise of a big payday. But there's one part of the deal that has sunk more dreams than it’s fulfilled: the earnout.

In today’s article, we’re breaking down why earnouts often lead to frustration, conflict, and disappointment — even in deals that start with the best intentions. I’ll share what I’ve seen, what you need to watch for, and what to negotiate instead. If you’re anywhere near the sale of your business, this is a must-read.

What an Earnout Really Means (And Why It’s Risky for Sellers)

An earnout is a performance-based payment tied to future results. On paper, it sounds simple: “If the business hits these numbers, you’ll get more money.”

In reality? The buyer controls the scoreboard.

“An earnout is a bridge between the seller’s goals and the buyer’s goals. But if you don’t control the business anymore, how do you control the outcome?”

That’s the trap. Once you sell, you're no longer in charge. You don’t make hiring decisions. You don’t approve expenses. You might not even see the real numbers. And when the buyer holds the keys, what incentive do they have to make sure you hit those targets?

Common reasons earnouts fail:

• The new owner makes changes that hurt performance

• You no longer have authority to drive the business

• Strategic decisions delay or reduce your earnout potential

• Disputes arise over how the numbers are calculated

Real-World Example: When Control Slipped Away

In the interview, I told a story about a seller who had a $3M earnout tied to EBITDA growth over 24 months. He stayed on as CEO post-sale, but two months in, the buyer replaced his CFO, changed the comp plan, and shifted pricing strategy.

By month six, revenue dipped. By month twelve, margins shrank. And by the end of the earnout window, he had missed the target by 8%. His payout? Zero.

“The seller said to me, ‘I built this business for 20 years, and I got less than what I could’ve made just staying the course another 18 months.’ That’s not how a win is supposed to feel.”

How Earnouts Create Misaligned Incentives

Earnouts can feel like a compromise — a way to close the valuation gap. But they often mask deeper misalignment.

Here’s the problem: sellers want upside for what they’ve built. Buyers want downside protection in case they overpay. Those two goals don’t mix well when wrapped inside a performance clause the seller can’t enforce.

“If the buyer wanted your leadership, they should’ve paid you for it upfront. Don’t finance the deal with your own risk.”

When both sides have different definitions of “success,” earnouts become legal landmines. They delay the real conversation and often lead to finger-pointing later.

How to Avoid the Earnout Trap

If you’re thinking about selling, here are five ways to protect yourself:

1. Push for more cash at close. If the buyer believes in the business, they’ll pay for it.

2. Limit or eliminate the earnout clause. Especially if you’re exiting operational control.

3. Define earnout terms with clarity. Include detailed metrics, timelines, and dispute resolution.

4. Negotiate control rights if you're staying. Make sure you can still influence the outcome.

5. Get advice from deal-side attorneys. Not just your general business lawyer.

“Sellers often focus on price. But structure beats price every time. A $10M deal with $8M in earnout is not the same as a $7M deal with cash at close.”

Quick Takeaways: What Every Seller Should Remember

• Earnouts are not bonuses — they’re risk-shifting tools

• If you can’t control the outcome, don’t tie your payout to it

• Deals with high earnouts often signal valuation disagreement

• Clear language and legal protection are your best friends

• The best earnout is one you don’t have to depend on

Conclusion: You Don’t Need to Gamble to Get a Deal Done

Selling your business is one of the biggest moments of your life. Don’t let the deal structure chip away at what you’ve built. Earnouts may look fair at first glance, but they often tilt the table toward the buyer — especially after you hand over the keys.

You can negotiate better. You can ask smarter questions. And you can protect your legacy by structuring the deal around clarity, not guesswork.

If you’ve built something valuable, make sure the deal reflects it — not just in theory, but in your bank account.