Deal structure, earnouts, and what you actually receive

Every other page on this site is about the number. This one is about how much of it you keep, which is a different question and often a larger one.

A buyer offering $1.17 million and a buyer offering $1 million are not necessarily offering you $170,000 of difference. Depending on how the two deals are built, the second can be worth more.

The headline price is not a wire transfer

When a buyer says a number, they mean the total consideration on paper. What arrives in your account at closing is some fraction of it, and the rest is spread across mechanisms that each carry their own way of not paying you.

The usual components:

Cash at close. The only part that is certain. Everything else is a promise with conditions attached.

Escrow, or a holdback. A slice of the price parked with a third party for a stated period, available to the buyer if something they were told turns out not to be true. Commonly around ten percent, commonly held twelve to twenty-four months. You usually get it. You do not get it on closing day.

A seller note. You lend part of the price back to the buyer and are repaid over years, with interest. Common in smaller and internal deals — see selling your practice to your own clinicians.

An earnout. A payment contingent on the practice performing to an agreed standard after you no longer control it. This is the one that causes the most trouble, and it gets its own section below.

Rollover equity. You keep a minority stake in the acquiring entity. It can be genuinely valuable — a second bite when the platform itself sells — and it is also the least liquid thing you will ever own, valued on terms you did not set.

What the same deal looks like built two ways

Take the $1.17 million from what multiple do therapy practices sell for — a group with $450,000 of SDE at 2.6×.

Offer A — $1.17 million, structured. Seventy percent cash at close, ten percent in escrow for eighteen months, twenty percent earnout over two years.

• At closing: $819,000
• If nothing goes wrong in escrow: +$117,000 eighteen months later
• If the earnout targets are met in full: +$234,000 across two years

Offer B — $1 million, all cash at close. At closing: $1,000,000.

Offer A is worth more only if you collect essentially all of it. Miss the earnout and it pays $936,000 — less than Offer B, two years later, with two years of being answerable to someone else’s targets in between. Hit everything and it pays $1.17 million, most of it slowly.

The headline gap was $170,000. The realistic gap is somewhere between negative $64,000 and positive $170,000, and which end you land on depends mostly on things you will not control after closing.

Earnouts, and why they disappoint

An earnout pays you if the practice hits agreed numbers in the years after the sale. It is a reasonable idea: the buyer is nervous about whether the revenue transfers, and rather than discount the price they offer to pay the difference if it does.

The problem is structural rather than moral. You are being paid on the performance of a business you no longer run. The new owner sets the budget, approves the hires, decides the marketing spend, chooses whether to raise fees, and may fold your practice into a larger operation whose numbers are reported differently from yours. Each of those is a legitimate business decision. Several of them can also make your earnout unreachable without anyone acting in bad faith.

If an earnout is on the table, the questions that matter are all about control and measurement:

What exactly is measured? Revenue is far better for you than any profit measure. Profit can be reduced by allocations, management fees and shared costs you have no say over. Revenue is harder to move around.

Who produces the number, and can you see the workings? You want a stated right to inspect the calculation, in the agreement, not as a courtesy.

What is the buyer obliged to do? Covenants to run the practice consistently with past practice, keep it as a separate reporting unit for the earnout period, and not starve it of resources. Without these, the earnout is a hope.

What happens if they sell again, or reorganise? Acceleration on a change of control, so a second transaction does not quietly end your entitlement.

Is it all-or-nothing? Cliff earnouts pay everything at a threshold and nothing below it. Sliding scales pay proportionally. A near miss on a cliff pays zero, and near misses are common.

The most useful mental adjustment: treat the earnout as worth materially less than its face value when comparing offers. If a structured offer only beats a clean one when the earnout pays in full, it does not really beat it.

The parts sellers forget to negotiate

Escrow terms, not just the amount. How long, what can be claimed against it, whether there is a threshold below which small claims cannot be brought, and whether escrow is the buyer’s only recourse or merely their first stop. That last point matters more than the percentage.

Your transition obligations. Months or years, and on what terms — a defined role and defined hours, or an open-ended commitment to be available. Compensated separately, or bundled into a price you are also being asked to wait for. Owners routinely agree to this in a sentence and then live inside it for two years.

Personal guarantees. On the lease, on equipment finance, on any credit line. Selling the practice does not automatically release you. If nobody raises it, you can remain personally on the hook for obligations of a business you no longer own.

Restrictive covenants on you. Scope, geography and duration. This is your ability to work afterwards, and it is negotiable — but only before signing.

Where all of this gets decided

Not in the purchase agreement. In the letter of intent, which most sellers treat as a formality on the way to the real negotiation.

There is no real negotiation afterwards. Once you sign an LOI you are usually bound to exclusivity — no other buyers for a stated period — and from that moment every open question is settled between you and the only remaining buyer, with a clock running and your alternatives gone.

So structure has to be argued in the LOI, while you still have somewhere else to go. How to sell a group therapy practice covers the sequence around it.

What to actually compare

When two offers are in front of you, the multiple is close to the least useful number available. Compare instead:

1. Cash at close. The certain part.
2. Everything else, discounted for the chance you never see it — and discounted again for arriving years later.
3. What you are required to do for the contingent portion, and for how long.
4. What you remain exposed to afterwards — guarantees, indemnities, the survival period on your representations.

A lower headline that is mostly cash, with a short escrow and no earnout, is frequently the better deal. It is also the one that feels worse to accept, because the number you get to say out loud is smaller. That feeling has cost sellers real money.

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Structure interacts with whether you sell the entity or its assets, which for a licensed practice is often not a free choice — see asset sale vs stock sale.

None of this is legal, tax or accounting advice, and structure is precisely where that distinction has teeth. Have your attorney and your CPA involved before you sign a letter of intent, not after.

If you are earlier than this and still working out the number itself, the valuation calculator is free and takes about four minutes.