Who this is for: sellers being offered part of their consideration as an earn-out.
Both, and which one depends on a single question: after closing, do you still control what your payout depends on?
Earn-outs don't just change your payout. They change who controls the levers.
When earn-outs help
When they bridge a genuine valuation gap.
The buyer wants proof. The seller wants upside. Everyone moves forward. Earn-outs work best when targets are achievable, measurable, and you can still influence the drivers after closing. They also work when the wording is clean enough to avoid constant disputes.
The real risk founders miss
Not whether the business can perform. Whether you still control what performance depends on.
If the buyer controls pricing, hiring, budgets and product direction, your earn-out becomes a permission slip.
Four ways earn-outs hurt sellers most
| Trap | What happens | The fix |
|---|---|---|
| Tax and structuring | Tied to performance and retention, it can resemble employment income | Get tax advice while the structure can still change |
| Targets set too high | A high headline price you will not collect | Run the maths before agreeing the number |
| All-or-nothing payout | One miss and you get zero | Pro-rate it. Miss slightly, still get something |
| EBITDA without definitions | Accounting choices and cost allocation decide your payout | Define it in black and white, or use revenue |
Negotiate three things early
The metric, the definitions, and the payout shape.
Valuation is what gets announced. Earn-out mechanics decide what you actually take home.
Frequently asked questions
Are earn-outs taxed as employment income in Singapore?
Depends on how earn-outs are structured. It could be income if it is pegged to performance or retention. Seek tax advisor's advice on this.
What share of a deal is typically an earn-out?
30% to 50% seems to be market norm based on my exp.
Can I refuse an earn-out?
You can, and the buyer may reprice. The better move is usually to accept the principle and negotiate the metric, the definitions and the payout shape.
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