Document costs read firsthand, 31 August 2026

Earnout Agreement, Seller Note and Working Capital Adjustment: How the Price Changes After You Sign

An earnout is a portion of the purchase price you pay later, only if the business hits agreed targets after closing. It is one of three mechanisms that move the number you shook hands on: the earnout makes part of the price contingent on future performance, a seller note defers part of it as a loan the seller makes to you, and a working capital adjustment trues the price up or down at closing based on the level of working capital actually delivered. Most small acquisitions use at least one. Buyers who model only the headline price are modelling the wrong number.

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The practical problem is that none of the three has a published standard. There is no surveyed earnout length, no standard percentage of price, and no authority that publishes how a working capital peg should be set. What can be checked is what the paperwork costs and how often it is actually written, and there the numbers are more revealing than any benchmark. On 31 August 2026 the ContractsCounsel marketplace published an average of $380.00 to review an earn out agreement across 12 completed projects, and no drafting average at all. On the same day it published $710.00 to draft a promissory note across 267 projects. That gap is the honest answer to how common earnouts are on small US deals: seller notes are routine legal work, earnouts are not.

Buyouts is a marketplace for AI SaaS where MRR, ARR, growth and churn are verified before a listing goes live, which is the part of this problem that structure cannot fix. An earnout is usually a buyer's response to numbers they do not trust. Browsing Buyouts is free and buyer membership is planned rather than currently on sale. Listings shown in the product are illustrative UI. Nothing on this page is legal, tax or investment advice, and deal structure is something to take to your own attorney.

An earnout is not a valuation tool. It is a disagreement about the numbers, written down and postponed, and it converts a price negotiation you could have finished in a week into an accounting argument that runs for two years.

The three mechanisms

Earnout, seller note and working capital adjustment, compared

All three change the cash that actually leaves your account, and buyers routinely confuse them because all three get called deferred payments. They are not interchangeable. One is contingent, one is debt, and one is an arithmetic true-up that happens whether anyone wants it to or not.

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Mechanism	What it is	When you pay	What decides the amount	The failure mode
Earnout	Part of the price, payable only if the business hits agreed post-closing targets	Usually 12 to 36 months after closing, in one or more instalments	A performance metric measured after you own and control the business	The metric is measured on financials you now produce, so the seller disputes how you ran the company
Seller note	Part of the price, lent to you by the seller and repaid with interest	On a fixed amortization schedule from closing, regardless of performance	A promissory note: principal, rate, term, security and subordination	Subordination and standby terms are agreed loosely, then the senior lender rewrites them at underwriting
Working capital adjustment	A true-up of the price at or shortly after closing	At closing on an estimate, then trued up 60 to 90 days later on final figures	A peg: the normal level of working capital the business needs to keep running	No peg is set in the letter of intent, so the number is argued when you have already lost all leverage
Holdback or escrow	Part of the price parked with a third party against breaches of the seller warranties	Released on a fixed date unless a claim is made	The indemnity clauses in the purchase agreement, not performance	Treated as an earnout by the seller, who expects it back automatically
Consulting or transition agreement	Payment to the seller for work after closing, separate from the price	Monthly across an agreed transition period	An hourly or monthly rate for defined help	Used to disguise purchase price, which creates a tax and, on an SBA deal, a compliance problem

The distinctions above are structural rather than sourced from any single authority, because no US body publishes a standard for any of them. What we did verify firsthand is what each document costs to produce and how often it is produced, in the cost table below. The SBA rules on seller notes are from SOP 50 10 8.0 and SOP 50 10 8.1 and are quoted separately. Nothing here is legal advice, and the tax treatment of each mechanism differs enough that it is worth an accountant before it is worth an attorney.

ContractsCounsel marketplace averages, read 31 August 2026

What each document costs to draft, and what the sample size tells you

These are averages from completed engagements on a legal marketplace that publishes its sample size, which is why they are usable where no professional body surveys fees. Read the Projects column as carefully as the price column. It is the more informative one.

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Document	Avg cost to draft	Avg cost to review	Projects in the sample	What the sample size implies
Promissory note (seller note)	$710.00	$390.00	267	Routine, commoditized work. Seller financing is ordinary on small US deals
Asset purchase agreement	$1,290.00	$800.00	134	The main event. Most small acquisitions close on one
Business purchase agreement	$980.00	$1,050.00	105	Note that review is published above drafting here, the reverse of every other row
Stock purchase agreement	$1,200.00	$780.00	42	Less common than an asset purchase on small deals, and the sample reflects it
Earn out agreement	Not published	$380.00	12	No drafting average exists at this sample size. Earnouts are rare and bespoke

Figures were read firsthand from the ContractsCounsel marketplace on 31 August 2026 for the earn out agreement and promissory note pages, and on 26 August 2026 for the three purchase agreement pages, which are unchanged. The earn out page publishes a review average of $380.00 across 12 recent projects and no drafting average; it does show one individual Arizona drafting engagement bid at $690 to $1,000, which is a single data point rather than an average and is presented here as such. The promissory note page publishes $710.00 to draft and $390.00 to review across 267 projects. The same marketplace publishes an hourly ladder of $100 to $350 for a standard practitioner, $250 to $400 for a business or corporate lawyer, $450 to $650 for a large firm associate and $700 to $1,200 for a large firm partner. Averages describe engagements that happened on one marketplace and are not a quote for your deal.

Side by side

Structuring around verified numbers versus structuring around doubt

A fair look at what each does well. Both are useful. Here is where they differ.

Feature	Buyouts	Assuming the agreed price is the price you pay
Why an earnout gets proposed	Rarely needed when MRR, ARR, growth and churn are verified before listing	A buyer who cannot verify the revenue prices the doubt instead of resolving it
What the seller is asked to accept	A price agreed on figures both sides can see	A price that depends on decisions the buyer will make after taking control
Who controls the measured metric	Not applicable when the price is fixed at closing	The buyer, entirely, which is the structural reason earnouts get litigated
Time to a final number	Settled at closing	12 to 36 months, with an accounting argument available at every measurement date
Cost to paper	Purchase agreement only	Purchase agreement plus an earn out agreement, and the marketplace sample for those is 12 projects deep
What you can transact on today	Browsing is free and buyer membership is planned rather than on sale	A live deal you can actually structure and close right now, which is a real advantage they have

Comparison reflects general, publicly understood positioning. Capabilities change, so check each marketplace for the latest. Trademarks belong to their owners.

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The earnout problem nobody explains before you sign one

An earnout hands the seller a claim on a number that you, the buyer, will produce. From the day after closing you control pricing, hiring, marketing spend, accounting policy and which costs get allocated where. Every one of those decisions moves the metric the earnout is measured on. That is not a hypothetical conflict, it is the structure of the instrument, and it is why earnout provisions are among the most litigated clauses in private M&A. The defence is specificity, and it is boring work that pays. Define the metric in one sentence that an accountant who has never met either of you could apply. Say which accounting policies apply and freeze them for the earnout period, because a perfectly legitimate change in revenue recognition can wipe out a payment. State what happens to the metric if you acquire another business, discontinue a product line, change pricing, or move the company onto your own systems. Say who prepares the earnout statement, on what timetable, what the other side may inspect, how long they have to object, and who breaks a tie if they do. Most earnout disputes are not about bad faith. They are about a clause that named a metric and forgot to name the rules for calculating it.

Why a smaller fixed price usually beats an earnout

If the gap between what you will pay and what the seller wants is twenty percent, an earnout does not close it. It postpones it, and it adds two years of measurement risk to both sides in exchange. The seller carries the risk that you run the business differently than they would have. You carry the risk of a dispute over financials you produced yourself, at a point when you have already paid most of the price and have no leverage left. Buyers who verify revenue properly during diligence usually find they do not need the mechanism at all. An earnout is a priced expression of doubt, and doubt is cheaper to remove than to finance. Tie the revenue to bank deposits, read the processor export, check the subscription ledger against both, and the question the earnout was meant to answer is usually settled in an afternoon. A buyer who then tightens the price by ten percent and pays it at closing is frequently better off than one who agrees a higher headline number with a two year argument attached to it.

Seller notes: the SBA rules that quietly rewrite your term sheet

A seller note is the most common way a small US acquisition bridges a funding gap, and it is far more predictable than an earnout because the amount is fixed. The complication is what happens when a bank is also in the deal. If you are using SBA 7(a) financing, the SBA rulebook, not your negotiation, controls whether the seller note helps you at all. We read SOP 50 10 8.0, effective 1 June 2025, and SOP 50 10 8.1, which applies to applications issued an SBA loan number on or after 1 October 2026, firsthand. Under both, a seller note counts toward your required equity injection only if it is on full standby, meaning no payments of principal or interest, and under 8.0 that standby must run for the entire term of the loan, with the note capped at no more than half the required injection. SOP 50 10 8.1 keeps full standby for the term of the loan and states that for an Initial Acquisition the 10% equity injection cannot be reduced or eliminated. A seller note is therefore not a substitute for a down payment. At best it covers half of one, and only if the seller agrees to receive nothing for years.

What a seller note should actually be priced against

That standby rule kills more term sheets than anything else in a small acquisition. A seller who agreed to carry twenty percent at eight percent interest with payments starting in month one has agreed to something the lender will not accept as equity, and the discovery usually happens in underwriting rather than at the negotiating table. Agree the standby terms before you agree the rate, because the standby terms determine whether the rate matters. On pricing, argue from a published base rather than from a number someone suggested. The Federal Reserve statistical release H.15 dated 1 September 2026 put the bank prime loan rate at 6.75%, and that is the reference most US acquisition debt is quoted against. A seller note sits behind the bank, so it is riskier money and should price above prime, but the starting point is a published figure both sides can look up rather than a rate anchored to whoever spoke first. Document it as a promissory note with principal, rate, term, amortization, security and a subordination agreement, and expect the senior lender to have views on the last two.

Working capital: the adjustment that happens whether you negotiate it or not

Of the three mechanisms this is the one buyers most often ignore, and it is the only one that is close to automatic. A business needs a certain amount of cash tied up in receivables, inventory and prepaid costs, net of what it owes suppliers, simply to keep operating. If the seller collects the receivables and stops paying suppliers in the weeks before closing, they hand you a business that works but has no working capital in it, and you fund the shortfall out of your own pocket in month one. The purchase price did not change. Your cash outlay did. The fix is a peg, agreed in the letter of intent rather than in the purchase agreement. Take twelve to twenty four months of monthly balance sheets, calculate net working capital the same way each month, and set the target at a normalized average that reflects any seasonality. Then write the mechanism: an estimate at closing, final figures within 60 to 90 days, a dollar for dollar adjustment against the price in either direction, and a stated process if the two sides disagree on the final calculation. Leaving the peg to the purchase agreement means negotiating it after exclusivity has expired and diligence money is already spent.

What the marketplaces actually let you structure

Structure is only available where the venue allows it, and the venues differ far more than buyers expect. Empire Flippers has no negotiation stage at all on a listed purchase. Its buyer process is a Buy It Now button and a bank wire, it states that all sales are final, and where two buyers wire for the same listing the first wire in wins and the others are refunded. There is no earnout, no seller note and no working capital peg, because there is no document to put them in. Its scoreboard, re-read on 1 September 2026, reported 2,670 businesses sold, $604,659,848.01 in cumulative sales volume, an average of 125 days from listing to sold, 181 current listings and sellers achieving an average 95% of asking price. Acquire.com sits at the other end. Paid members can build, sign and send letters of intent and asset purchase agreements inside the platform, with Escrow.com wired into the flow and an explicit choice about who pays the escrow fee. Its buyer pricing, re-read on 1 September 2026 and unchanged, shows a free Basic tier for browsing and paid membership starting at $390, with Premium giving access to startups priced up to $250k and Platinum to startups of all sizes. Investors Club publishes the most buyer-useful policy we have found on any venue, and it is effectively a productized micro-holdback: a 14 day post-migration period during which it monitors that the business performs against a revenue threshold written into the purchase agreement. Flippa returned a Cloudflare challenge to automated requests, so its position is recorded as unverified rather than assumed.

Good questions

Earnouts, seller notes and price adjustments, answered

An earnout is a portion of the purchase price that a buyer pays only if the business hits agreed targets after closing. It is written as a separate schedule or agreement, names a metric such as revenue or EBITDA, sets measurement dates over a period usually between 12 and 36 months, and states what gets paid at each level of performance. It bridges a disagreement about value by postponing part of the price rather than by resolving the disagreement.

The same thing under a different spelling. Earn out, earnout and earn-out all describe contingent purchase price consideration: money the buyer owes only if defined post-closing performance is achieved. In the United States it appears most often when a seller believes the business is about to grow and the buyer will not pay today for growth that has not happened yet.

Pick one metric that is hard to manipulate, usually revenue rather than a profit measure, because profit runs through the buyer's cost decisions. Freeze the accounting policies used to calculate it for the whole earnout period. Set a measurement period, normally 12 to 36 months. Decide whether payment is a cliff or a sliding scale, and prefer a sliding scale, because a cliff turns a near miss into a total loss and a lawsuit. Then write the protections: who prepares the statement, what the seller may inspect, how long they have to object, and who resolves a dispute.

Take the agreed metric for the measurement period, compare it to the threshold in the agreement, and apply the stated formula. A common form pays a fixed percentage of revenue or profit above a threshold, capped at a maximum. The arithmetic is rarely the hard part. The disputes come from the definitions: which revenue counts, which costs are allocated, and what happens when the buyer changes the business. Define those and the calculation is mechanical.

Most run 12 to 36 months, though no US body publishes a standard and the ranges quoted on advisory blogs are opinion rather than surveyed data. Shorter is better for a buyer, because every additional measurement period is another opportunity for a dispute and another year in which you cannot fully integrate the business without arguing about the effect on the metric.

A seller note is a loan the seller makes to the buyer for part of the purchase price, documented as a promissory note with a principal amount, an interest rate, a term, an amortization schedule and usually a subordination agreement placing it behind any bank debt. Unlike an earnout, the amount is fixed and does not depend on performance. On the ContractsCounsel marketplace, read 31 August 2026, drafting one averaged $710.00 across 267 completed projects.

Only partly, and only on strict terms. Under SOP 50 10 8.0 a seller note counts toward the required equity injection only if it is on full standby for the entire term of the loan, meaning no principal or interest payments, and it cannot exceed half the required injection. SOP 50 10 8.1, which applies to applications issued a loan number on or after 1 October 2026, keeps full standby for the loan term and states that for an Initial Acquisition the 10% equity injection cannot be reduced or eliminated. So it can cover at most half your injection, never all of it.

A working capital adjustment trues the purchase price up or down based on the level of net working capital actually delivered at closing, measured against a target called a peg. If the business is handed over with less working capital than the peg, the price drops by the shortfall. If it has more, the price rises. It is settled with an estimate at closing and final figures usually 60 to 90 days later.

Calculate net working capital as current assets less current liabilities, excluding cash and debt on a cash free debt free deal, using the same definition every month. Average it over 12 to 24 months to set the peg, adjusting for seasonality. At closing, compare estimated actual working capital to the peg and adjust the price dollar for dollar. Then repeat with final figures once the closing accounts are prepared and settle the difference.

The peg is the agreed target level of working capital that the business must be delivered with. It is the single number the whole adjustment turns on, and the mistake buyers make is leaving it out of the letter of intent. Setting it in the purchase agreement means negotiating it after exclusivity has expired and diligence money is already spent, which is the point of the process where a buyer has the least leverage.

It depends entirely on how the agreement defines it, and on a subscription business it is usually the most valuable single line in the negotiation. Deferred revenue is cash the seller has already collected for service you will have to deliver. If it is excluded from the peg the seller keeps that cash and you carry the obligation. If it is included as a current liability the price effectively drops. Neither treatment is standard, so raise it early and in writing.

No drafting average is published. When we read the ContractsCounsel earn out agreement page on 31 August 2026 it showed an average of $380.00 to review one across 12 recent projects and no drafting figure at all, alongside a single Arizona drafting engagement bid at $690 to $1,000. For comparison, the same marketplace publishes a $1,290.00 average to draft an asset purchase agreement across 134 projects. The 12 project sample is itself the useful information: earnouts are uncommon on small US deals.

Less common than buyers assume. The clearest indicator we can verify is sample depth on a legal marketplace: on 31 August 2026 ContractsCounsel published 267 completed promissory note projects against 12 earn out agreement projects. Seller notes are ordinary practice on small US acquisitions. Earnouts are the exception, and they cluster on deals where the seller is projecting growth the buyer will not pay for.

Whatever the agreement says, which is why the sliding scale matters. Under a cliff structure a seller who lands one percent short receives nothing, and that is the fact pattern that produces litigation, usually framed as a claim that the buyer ran the business in a way that suppressed the metric. Under a sliding scale a near miss produces a near payment and the dispute rarely starts. Many agreements also allow catch-up across periods, so a strong second year can recover a weak first year.

Usually, by resolving the disagreement instead of postponing it. An earnout is almost always a proxy for uncertainty about whether the reported numbers are real or whether the recent trend continues. Verified revenue data removes the first question and a smaller fixed price removes the second. A buyer who tightens the price by ten percent and pays it at closing often ends up better off than one who agrees a higher headline number with two years of measurement risk attached.

Generally yes, though the timing and the character of the income depend on how the deal is structured, whether the instalment method applies, and whether any part of the payment is recharacterised as compensation for post-closing services. That last risk is real when an earnout is paired with a consulting agreement. This is an accountant question before it is an attorney question, and the treatment differs enough between deals that no page should give you a number.

They differ completely. Empire Flippers has no negotiation stage on a listed purchase at all: its process is Buy It Now plus a bank wire and it states that all sales are final. Acquire.com lets paid members build, sign and send letters of intent and asset purchase agreements in the platform, with Escrow.com attached, so structure is available there. Investors Club instead publishes a 14 day post-migration monitoring period against a revenue threshold written into the purchase agreement, which delivers the protection an earnout is reaching for without the measurement argument.

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