Earnouts, Holdbacks & Seller Financing: Deferred Payment Explained
The headline price of an acquisition is rarely the whole story. A "$300K exit" might mean $300K wired at close — or $200K now and $100K spread over two years if certain targets are hit. Deferred payment structures are common in indie acquisitions, and understanding them tells you whether a generous-looking offer is actually generous.
The Three Main Forms of Deferred Payment
Earnouts. Part of the price is paid later, contingent on the business hitting agreed targets after the sale — revenue, retention, or growth milestones. The buyer reduces their risk; you get paid more *if* the business performs.
Holdbacks (escrow). A portion of the price is held back for a set period to cover any problems that surface after close — undisclosed liabilities, customer disputes, or representations that turn out to be wrong. If nothing goes wrong, you get it.
Seller financing. You effectively lend the buyer part of the purchase price, and they pay you back over time with interest. Common when the buyer can't or won't pay all-cash up front.
Why Buyers Ask for These
All three structures shift risk from the buyer to the seller. That's the point. A buyer who isn't fully sure the revenue will hold, or who can't raise all the cash, uses deferred payment to bridge the gap and protect their downside.
This isn't inherently bad. Sometimes it's the difference between a deal and no deal, and a well-structured earnout can get you a *higher* total price than an all-cash offer would have.
When Deferred Payment Is Reasonable
- The earnout targets are realistic and measurable. "Maintain current MRR for 6 months" is fair. "Grow revenue 50%" when you're leaving is not.
- You retain some influence, or the targets don't depend on you. An earnout tied to growth you can no longer drive is a trap.
- The holdback period and amount are proportionate. A 10-15% holdback for 6-12 months is normal. A 50% holdback for three years is not.
- Seller financing comes with proper terms. Interest, a clear schedule, and ideally security. You're taking on the buyer's credit risk — price it in.
When It's a Red Flag
Be cautious when deferred payment is being used to disguise a weak offer:
- Most of the price is contingent. If 60% of a "great offer" is an earnout you don't control, the real offer is the 40%.
- Targets depend on the buyer's actions. If the buyer controls marketing spend and the earnout is tied to growth, they can starve it.
- Vague or unmeasurable conditions. Anything you can't independently verify will become a dispute.
- The buyer can't pay cash and won't secure the financing. That tells you something about the buyer's resources.
How to Evaluate a Deferred Offer
Translate every offer into two numbers: the guaranteed amount (cash at close) and the at-risk amount (everything contingent). Compare offers on the guaranteed number first — that's what you're certain to receive. Then decide how much you believe in the at-risk portion based on who controls the outcome.
A clean all-cash offer at a slightly lower headline can easily beat a bigger offer that's mostly earnout. Certainty has value.
See how real deals were priced on the [FounderSold stats page](/stats), and read [what buyers look for](/blog/what-buyers-look-for-in-a-micro-saas) to understand why they ask for these structures in the first place.
*This is general information, not financial or legal advice. Consult a qualified professional before agreeing deal terms.*