SOP 60: Holdback vs. Earn-Out vs. Full Payment — Structuring Risk

SOP 60: Holdback vs. Earn-Out vs. Full Payment — Structuring Risk

Three payment structures. Each shifts post-close risk between you and the seller differently.

— Full payment at close: use only when diligence is airtight, revenue is verified live, and the asset is low-maintenance. Simplest, but you absorb 100% of any post-close surprise.
— Indemnity holdback (retain 10–20% in escrow for 30–90 days): use when revenue is verified but you want protection against an undisclosed problem — a hidden penalty, a clawed-back affiliate payout, an account ban. Release on schedule if nothing surfaces.
— Earn-out (part of price paid over 6–12 months tied to performance): use when the seller's traffic/revenue claims are partly unproven or trending uncertain. It aligns the seller to the numbers holding up.
— Structure rule: the shakier the verification, the more price you defer behind a holdback or earn-out.

Pass criterion: payment structure scaled to your remaining verification uncertainty.

Save this — run it every deal.