Earnouts and seller notes: bridging a price the two sides do not agree on

Buyer and seller frequently agree on everything except the price, usually because they disagree about the future. Two instruments bridge that. A seller note is straightforward debt: the seller finances part of the price and is repaid over time, with interest. It signals confidence, and it aligns the seller with the business surviving. Where SBA financing is involved, a seller note on standby terms can count toward the buyer's equity requirement, which is often the reason it exists. The risk is the seller's: they are now an unsecured or subordinated creditor of a business someone else is running. An earnout makes part of the price conditional on future performance. It resolves the disagreement by waiting to see who was right. Its failure mode is famous: the seller no longer controls the business but their payment depends on it, and every decision the buyer makes — hiring, marketing spend, how revenue is recognised, an acquisition that changes the accounts — can move the target. Which is why an earnout that works is written with obsessive specificity: the metric defined in accounting terms rather than adjectives, the measurement period, who prepares the calculation, the seller's right to see the workings and to dispute them, and covenants about how the business will be operated during the period. Revenue-based earnouts have fewer arguments than profit-based ones, because there are fewer lines to adjust. If the two sides cannot agree how the metric is calculated, they have not resolved the disagreement — they have postponed it into a lawsuit. This article is general information, not legal, tax or financial advice. Rules change and every deal is different — check your own case with a licensed professional. Alberto Zaltzberg — Adonait · adonait.com