Earnout

An earnout is when a buyer agrees to buy something for a certain amount of money, but part of that amount will be paid out only if certain conditions or goals are met. Let's use an example to make it easier to understand. Say that Bob is selling his ice cream store, and Alice is buying it. They agree that Alice will pay Bob $50,000 for the store. But they also agree to an earnout - if the store makes $10,000 in profits over the first year, then Alice will pay Bob an extra $5,000. This means that if the store reaches a certain goal, Bob will get extra money for selling the store - he "earns out" that extra money.