An earn-out is part of the purchase price that is only paid if the business achieves agreed performance measures after completion, usually over one to three years.

Is an earn-out guaranteed?

No. It is conditional by design. It may be paid in full, in part, or not at all, depending on performance and on how the agreement is drafted.

What is the difference between deferred consideration and an earn-out?

Deferred consideration is a fixed amount payable at a later date. An earn-out varies with post-completion performance, so the amount itself is uncertain.

Which performance measure should be used?

Profit-based measures such as EBITDA align with value but are exposed to cost allocation by the buyer. Revenue is simpler but can be achieved while margin falls. Whichever is used, the definition in the agreement matters more than the label.

Why do accounting policies matter?

Because the earn-out is calculated from figures the buyer prepares. Changes to policies, group recharges or cost allocation can reduce measured performance without any change in trading.

What happens if the buyer changes how the business is operated?

That is a common source of dispute. Agreements often include conduct undertakings, protection against diverting revenue or costs, and a dispute procedure for exactly this reason.

Should continued employment be linked to the earn-out?

It is common, but it links your payment to your role continuing. Consider what happens on illness, dismissal without cause or a change of management.

What is probability-weighted consideration?

It is each scenario outcome multiplied by the probability you assigned, added together. It is a planning figure for your own decision making, not an entitlement.

Does this calculator include tax or legal advice?

No. It is an indicative structural calculation. Tax treatment and enforceability both require professional advice.

Business valuation calculators

Earn-Out Calculator

See how much of an offer is guaranteed, deferred or dependent on performance

In short

An earn-out is consideration payable only if agreed future targets are met. Cash at completion is certain, fixed deferred consideration is contractually due but depends on the buyer paying, and the earn-out is conditional by design. Weighting each earn-out level by your own probability estimate gives a planning figure, not a legal entitlement.

An earn-out turns part of the price into a future promise. This calculator separates what is certain from what is conditional and shows how the outcome moves across realistic scenarios.

Part of the business valuation calculators suite from BusinessValuation.co.uk. Your result is saved in this browser, so you can compare it with your other calculator results.

How to use this calculator

Enter the amount payable at completion, fixed deferred consideration and maximum earn-out. Then set realistic downside, central and upside scenarios to see how the amount ultimately received could vary.

The offer

Cash payable at completion

£2,000,000

Fixed deferred consideration

Contractually due later, not performance related.

£250,000

Maximum earn-out

£1,000,000

Earn-out period

Performance measure

Payment timing

Scenarios

Set how much of the earn-out is achieved in each case, and how likely each case is.

Downside achievement

Downside probability

Central achievement

Central probability

Upside achievement

Upside probability

Present value (optional)

Discount the deferred amounts to today's money

Structure and protections

These points decide whether an earn-out is realistically payable.

Continued employment is requiredThe buyer controls accounting policiesI will have contractual access to management informationThere is protection against diverting revenue or costsThere is a dispute-resolution mechanismThe earn-out accelerates if the buyer resells

How to read this result

Only the cash at completion is certain on the day. Fixed deferred consideration is contractually due but still depends on the buyer paying it. The earn-out is conditional by design and may be paid in full, in part, or not at all. The probability-weighted figure uses the achievement levels and probabilities you entered, and is a planning number for your own decision making rather than a guaranteed or legal value.

Structure points requiring professional review

Payment depends on your continued employment, so resignation, illness or dismissal may affect entitlement.
The buyer controls the accounting policies used to measure performance.
You do not have a contractual right to the management information used to calculate the earn-out.
There is no stated protection against revenue or costs being moved between group companies.
No dispute-resolution procedure is recorded for disagreements over the earn-out calculation.
The earn-out does not accelerate if the buyer sells the business during the earn-out period.

Suggested next steps

Have the earn-out definition, accounting policies and measurement period reviewed by a solicitor.
Ask for contractual access to the management information used to calculate the earn-out.
Test the deal on the downside scenario alone and decide whether it is still acceptable.
Book a confidential review of the proposed structure before signing heads of terms.

Your earn-out position

Probability-weighted planning value

£2,962,500

Maximum headline consideration: £3,250,000
Guaranteed at completion: £2,000,000
Fixed but deferred: £250,000
Conditional earn-out (maximum): £1,000,000
Share guaranteed at completion: 61.5%
Share fixed but deferred: 7.7%
Share conditional on performance: 30.8%
Downside proceeds (40% achieved, 25% probability): £2,650,000
Central proceeds (75% achieved, 55% probability): £3,000,000
Upside proceeds (100% achieved, 20% probability): £3,250,000
Probability-weighted earn-out: £712,500
Probability-weighted total proceeds: £2,962,500
Indicative present value: Not requested

Before you rely on this

Probability-weighted consideration is a planning figure only. It is not guaranteed and it is not the legal value of the earn-out.
The structure points raised here are observations, not legal advice. Earn-out drafting should be reviewed by a solicitor before heads of terms are signed.
Personal tax is not calculated, and the tax treatment of earn-out consideration can differ from completion cash.

Next steps

Your result is above and stays visible. Request a confidential review of your proposed deal structure.

Important information

This calculator provides general, indicative guidance based solely on the information entered. It is not a formal business valuation, tax calculation, legal opinion or recommendation to accept or reject an offer. Actual value and sale proceeds depend on detailed financial, commercial and transaction-specific factors.

How this calculation works

Total headline consideration = cash at completion + fixed deferred + maximum earn-out
Probability-weighted earn-out = Σ (earn-out level × probability of that level)
Expected total = cash at completion + fixed deferred + probability-weighted earn-out
Certain proportion = cash at completion ÷ total headline consideration

Worked example: £5m headline with a two-year earn-out

Worked example: £5m headline with a two-year earn-out
Cash at completion	£3,250,000
Fixed deferred consideration	£500,000
Maximum earn-out	£1,250,000
Full target achieved (30% probability)	£1,250,000
Partial achievement (50% probability)	£700,000
Target missed (20% probability)	£0
Probability-weighted earn-out	£725,000
Expected total consideration	£4,475,000

The £5m headline weights to about £4.48m on these probabilities, and only £3.25m is certain on the day. Moving £250,000 of earn-out into completion cash is usually worth more than adding £400,000 to the maximum.

What each input means

Cash at completion: Consideration paid on completion day.
Fixed deferred consideration: Amounts contractually due later, independent of performance.
Earn-out levels: The amounts payable at full, partial and missed achievement of the targets.
Probabilities: Your own estimate of the likelihood of each level. These are judgements, not data.
Earn-out period: How long you remain exposed to the conditions.

How to read the result

The weighted figure is a planning number for your own decision making. It has no contractual status. Read it alongside the certain proportion, which is the part not exposed to future performance, drafting or buyer behaviour.

What can materially change the result

How the metric is defined and which accounting policies apply.
Whether you retain enough control to influence the outcome.
Buyer integration decisions that change the measured result.
Set-off rights, warranty claims and security for payment.
Whether targets are measured annually or cumulatively.

Limitations

It does not discount deferred amounts to present value unless you enter figures on that basis.
It does not read or test the drafting that determines payment.
It calculates no tax, and earn-out consideration can be taxed differently from completion cash.
Probabilities are your estimates, not statistical evidence.

When this calculator is appropriate

Use it when comparing structured offers, or when deciding how much certain cash to trade against conditional upside.

When it is not appropriate

Do not rely on it when agreeing earn-out terms. The definition, measurement and protections need legal and financial review.

Bottom line

Only completion cash is certain. Compare offers on certain money first, then on what the conditional element is realistically worth to you.

Questions owners ask

What is an earn-out?: An earn-out is part of the purchase price that is only paid if the business achieves agreed performance measures after completion, usually over one to three years.
Is an earn-out guaranteed?: No. It is conditional by design. It may be paid in full, in part, or not at all, depending on performance and on how the agreement is drafted.
What is the difference between deferred consideration and an earn-out?: Deferred consideration is a fixed amount payable at a later date. An earn-out varies with post-completion performance, so the amount itself is uncertain.
Which performance measure should be used?: Profit-based measures such as EBITDA align with value but are exposed to cost allocation by the buyer. Revenue is simpler but can be achieved while margin falls. Whichever is used, the definition in the agreement matters more than the label.
Why do accounting policies matter?: Because the earn-out is calculated from figures the buyer prepares. Changes to policies, group recharges or cost allocation can reduce measured performance without any change in trading.
What happens if the buyer changes how the business is operated?: That is a common source of dispute. Agreements often include conduct undertakings, protection against diverting revenue or costs, and a dispute procedure for exactly this reason.
Should continued employment be linked to the earn-out?: It is common, but it links your payment to your role continuing. Consider what happens on illness, dismissal without cause or a change of management.
What is probability-weighted consideration?: It is each scenario outcome multiplied by the probability you assigned, added together. It is a planning figure for your own decision making, not an entitlement.
Does this calculator include tax or legal advice?: No. It is an indicative structural calculation. Tax treatment and enforceability both require professional advice.

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