How to protect value, reduce risk, and negotiate the terms that matter when selling your business.

Selling your business is rarely a simple “cash on completion” event. Most deals today involve some form of contingent payment, a mechanism designed to bridge valuation gaps, manage buyer risk and, in many cases, reward sellers for future performance.

These structures can work brilliantly when aligned… or cause real pain when misunderstood. This guide breaks down the most common mechanisms you’ll encounter, what they mean in practice, and how to negotiate them with confidence.

Why deal mechanisms exist

Buyers often want reassurance. They may love the business, but they also see risk: customer retention, market uncertainty, reliance on the owner, competitive threats, or the ability of the team to maintain performance post-sale.

Deal mechanisms help mitigate that risk. For sellers, they can be a powerful way to achieve a higher overall price, if structured correctly.

1. Earn-outs

An earn-out links part of the purchase price to future performance (typically EBITDA, revenue, or gross profit).

When they work well

• The business is on a clear upward trajectory.
• The seller is willing to stay involved for a defined period.
• Performance metrics are simple, measurable, and difficult to manipulate.

Key risks to watch

• Control: If you’re not running the business post-sale, you rely on the buyer’s decisions. Operational changes can impact earn-out metrics.
• Definitions: EBITDA, “adjusted earnings”, and even “revenue” can be interpreted differently by buyers.
• Integration: If your business is merged into the buyer’s group, how will your numbers be tracked?

How to protect yourself

• Agree definitions in the SPA, not verbally.
• Set clear rules around investment, staffing, reporting and budget decisions.
• Consider a minimum guaranteed payment to reduce downside risk.

2. Deferred Consideration

This is when part of the price is paid later but not necessarily linked to performance. Think of it as a time-based payment schedule.

When it’s used

• To help buyers manage cashflow
• To reflect working capital adjustments
• To give breathing room for post-completion integration
• In family or generational transactions

Key risks

• Credit risk: You’re relying on the buyer’s ability to pay later.
• Security: Payments might not be secured against anything.
• Timeframes: Sellers often underestimate how long “deferred” can mean.

How to protect yourself

• Request security: debentures, personal guarantees, or escrow accounts.
• Define interest charges for late payment.
• Ensure there are no open-ended conditions attached to your payout.

3. Contingent Payments (Milestones, Retentions & Holdbacks)

These sit between earn-outs and deferred payments. You’re paid later if certain events occur but not necessarily linked to financial performance.

Examples include:

• Customer contract renewals
• Completion of a major project
• Retention of key staff
• Achieving regulatory approvals
• Warranty/indemnity holdbacks to cover potential claims

Key risks

• Milestones can be subjective or dependent on buyer action.
• Retentions can be slow to release without good legal drafting.
• The timeline can stretch if milestones aren’t tightly defined.

How to protect yourself

• Make milestones binary: yes/no, achieved/not achieved.
• Push for time-bound releases (“the retention expires after 12 months unless a dispute is raised”).
• Avoid buyer-controlled conditions wherever possible.

Negotiation tips for business owners

1. Always focus on the definition before the number.
You can agree £500k of earn-out, but if “EBITDA” is redefined to a post-acquisition interpretation, you may never see it.

2. Think in terms of control.
The less control you have post-sale, the more cautious you should be with performance-linked structures.

3. Consider risk-adjusted pricing.
Sometimes a slightly lower guaranteed price beats a higher headline number built on hope.

4. Ask for modelling.
Make the buyer show you how the mechanism pays out under different scenarios.

5. Secure what you can.
Escrow, guarantees, security over shares or assets,  these aren’t “aggressive”; they’re normal risk-management tools.

When deal structures help – and when they don’t

Mechanisms like earn-outs and deferred consideration aren’t inherently good or bad. They’re tools. For the right business and the right seller, they can unlock value and get deals over the line.

But poor drafting, ambiguous definitions or misaligned expectations can turn them into the most contentious parts of the transaction.

At Barnsgate Solutions, we spend significant time refining structuring options before going to market so deals don’t just complete, they work for the seller.