21 Mar Village Wellth: ETA Earnouts: Smart Strategy or Risky Move?
Struggling to agree on price when buying a business?
An earnout is one of the most common ways buyers and sellers bridge valuation gaps, but it’s also one of the most misunderstood.
In this video, we break down what an earnout is, when it makes sense, and the risks buyers need to understand before using one in a deal.
We cover:
What an earnout actually is (and how it works)
Why it’s considered both deferred and contingent financing
When earnouts make sense — especially in high-growth businesses
How buyers use earnouts when lenders won’t finance future projections
How lenders view earnouts (and why they often like them)
The risks: post-close conflict, low payout rates, and misaligned incentives
When earnouts don’t make sense (stable businesses, low trust, or no seller involvement)
Earnouts can be a powerful tool when structured properly and used in the right situations.
