Reasons to avoid an earnout when selling your accounting practice

by Brannon Poe | Jun 12, 2015   ()

Earnouts are popular deal structures used by buyers and sellers of accounting practices, but they have drawbacks. In an earnout, a buyer pays for a practice using the earnings that are actually experienced from that practice, plus an initial down payment in some cases. In a pure earnout structure, the buyer takes no risk in the deal and pays no interest, while the seller takes all of the risk.

One reason earnouts became popular is that many sellers (and many buyers) have difficulty imagining that clients will transfer easily to a buyer. They believe it takes months or years for clients to become comfortable with a new owner. As earnouts place a high level of risk on a seller, they keep him or her involved in the practice for a long time after a sale.

Source: AICPA
Source: AICPA

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