Set the rules for deferred sale payments

An earn out is often used when buyer and seller cannot fully agree on value at completion, especially where future revenue, profit or customer retention is uncertain. Instead of fixing the whole price upfront, part of the consideration is linked to later performance. The agreement matters because it needs to say exactly how that later amount is worked out. If the formula, assumptions or verification process are vague, the parties can end up arguing about accounting treatment, business decisions after completion, or whether a payment trigger has really been met.

The agreement will usually set out the earn out period, the financial or operational metrics being measured, the formula for calculating any additional payment, when payment becomes due, what records must be kept, and what access the seller has to verify the numbers. It may also deal with conduct restrictions on the buyer during the earn out period if those restrictions are commercially agreed, because post-sale decisions can affect the result. Depending on the transaction, the document may also need to align with the main sale agreement and completion arrangements.

The drafting depends heavily on the metric being used and how the business will operate after completion. For example, an earn out based on revenue raises different issues from one based on profit, margin, recurring subscriptions or retained clients. We also need to understand who controls the business after settlement, whether the seller stays involved, what accounting approach is being used, and what events might distort the result, such as restructures, one-off costs or changes to staffing. Those details shape the formula, verification rights and risk allocation clauses.

Templates often struggle with the commercial detail that makes earn outs workable. A generic form may mention future payments, but still leave uncertainty around definitions, calculation adjustments, access to financial records, treatment of extraordinary items, or what happens if the business is merged or materially changed during the earn out period. Those are not minor drafting points because they can directly affect the amount payable. A tailored agreement is usually more useful where the parties want the payment mechanism to reflect the actual deal rather than a broad example from another transaction.

A well-drafted agreement can help by setting out the calculation method, supporting records, notice process and any agreed pathway for resolving disagreements, such as expert review or another specified mechanism. That does not remove every commercial tension, but it gives the parties a clearer framework than relying on informal understandings. This service covers the document and the legal wording around those issues. It does not automatically include ongoing representation if a dispute develops after completion, although we can discuss separate assistance if further work is needed later.

Just submit an enquiry via this page or click the 'get started' button on our website to submit an enquiry. After you've submitted an enquiry, one of our legal consultants will review your enquiry within 1 business day and get in touch to get a better idea of exactly what you are looking for.

Then your legal consultant will send through an email with a bit more information about the services you need, along with a fixed fee quote setting out costs, scope of the service and timing. Have a read through it, and if you're happy with the scope, you can accept and sign our engagement letter online - easy!

Once you've formally accepted, we'll connect you with a specialist lawyer and they will work with you to complete your project. They will contact you by email or phone if they need to get in touch.

Sprintlaw works on fixed-fee pricing wherever possible, so you can review the scope and cost before you decide whether to proceed. For the Earn Out Agreement service, pricing starts from $900.00.

After you enquire, a legal consultant will confirm what is included, the expected timing and whether any extra work is needed before you engage us.

We operate completely online, which means we can help you wherever you are in New Zealand. We have office spaces in Sydney, and in Melbourne, but our use of technology allows our team members to work remotely from around the world. Our legal team are mostly based in Sydney, Melbourne, Brisbane and Perth. We also have a London office for Sprintlaw UK.

Our legal team is made up of experienced lawyers, who are specialists in various areas of law and hold an Australian legal practising certificate. None of our Sprintlaw lawyers are New Zealand qualified lawyers and they do not currently hold a New Zealand practising certificate.

They provide legal services working remotely from Australia via our 'legal consultancy' model, through which (under section 6 and section 35 of the New Zealand Lawyers and Conveyancers Act 2006) our Australian legal team are permitted to provide legal services to New Zealand businesses provided they do not provide services in certain 'reserved' areas of law. You can read our FAQ page to learn a bit more about our 'legal consultancy' model.

Given the strong similarities between Australian and New Zealand law, and the areas of law in which we practice (being small business and startup law), we do not view the fact that our lawyers have not qualified in New Zealand as having any substantive impact on the quality of our service. We are committed to ensuring that we provide high quality, affordable legal services to all our New Zealand clients.

Our legal team have all trained at leading firms, but have left the traditional corporate law world to join us on our mission to create a new and better way of delivering legal services. They have specialist expertise in technology law, intellectual property law, contract drafting and review, corporate law and commercial law.