Earnout vs. Cash Comparator
Compare a structured offer (earnout, seller note, equity rollover) to an all-cash offer on a risk-adjusted, present-value basis.
Example scenario—not a forecast or verified benchmark. Enable JavaScript to edit inputs, view charts, save locally and export your analysis.
Example inputs
- Offer A: all-cash price
- 4,000,000
- Offer B: cash at close
- 3,000,000
- Maximum earnout
- 1,000,000
- Earnout period
- 3
- Your estimate of how much of the earnout you will actually collect
- 50
- Seller note
- 500,000
- Seller note interest rate
- 6
- Seller note term
- 5
- Chance the buyer defaults on the note
- 10
- Equity rollover (value at close)
- 500,000
- Expected multiple on rollover at the buyer's exit
- 2
- Years until the buyer's exit
- 5
- Chance the buyer's plan hits that multiple
- 50
- Your discount rate (required return)
- 12
Example results
Take the structure: Offer B is worth $4.2M risk-adjusted vs $4M all-cash, a $231K edge, but only if you collect at least 21% of the earnout.
- Offer B, risk-adjusted present value
- $4,230,593
- Advantage of B over all-cash
- $230,593
- Offer B headline value
- $5,000,000
- Risk and time haircut on B
- $769,407
- Earnout collection needed to match cash
- 21%
- Share of B paid at close
- 60%
- Earnout, risk-adjusted
- $400,305
- Seller note, risk-adjusted
- $404,718
- Rollover, risk-adjusted
- $425,570
What stands out
The structured offer is worth $231K more, risk-adjusted
Offer B's $5M headline shrinks to $4.2M after discounting at 12% and applying your collection odds.
Earnout: $1M headline, $400K risk-adjusted
You need to collect at least 21% of the earnout for Offer B to match the all-cash price.
Only 60% of Offer B is paid at close
The rest depends on the buyer's performance and willingness to pay. Your leverage drops sharply once you hand over control.
Seller note pays $119K a year for 5 years
Worth $405K today at your discount rate and 10% default risk. Ask for a personal guarantee or security interest.
Rollover expected at 1.5x in 5 years
Present value of $426K versus $500K at close. Minority rollovers carry no control over the exit timing.
Next actions
- Push to move part of the earnout into cash at close; even a modest shift reduces your downside more than it reduces the buyer's upside.
- Tie the earnout to revenue or gross profit, not EBITDA, and secure operating covenants (budget, staffing, no integration changes) so the buyer cannot depress the metric.
- Secure the seller note with a personal guarantee or a second lien, and add cross-default to the senior loan so you are notified early.
- Have a deal attorney review earnout definitions, accounting rules, and dispute resolution before you sign the LOI.
Model assumptions & limitations
- All deferred payments are discounted at your 12% required return.
- Earnout is paid evenly over 3 year(s), with 50% expected collection (your estimate).
- Seller note amortizes annually; default risk of 10% is spread evenly across the term with zero recovery on default.
- Rollover returns 2x with 50% probability, otherwise 1x, at the buyer's exit in 5 years.
- Taxes are not modeled; earnouts, notes (installment sale), and rollovers can each be taxed differently. Confirm with your CPA.