My Earn-Out Was Cut After I Sold the Business: Rebuild the Number
This article is for you if:
You sold a business for upfront cash plus performance-linked consideration.
The buyer changed costs, customers or accounting during the earn-out period.
Your objection deadline is approaching and the buyer’s calculation is unclear.
An earn-out dispute is not solved by saying performance “felt strong”. Start with the share purchase agreement (SPA), reproduce its formula and bridge every disputed adjustment back to ledgers and source documents.
Extract the bargain first
SPA item | What to capture |
|---|---|
Metric | Revenue, EBITDA, ARR, units or a milestone |
Accounting hierarchy | Specific policies, past practice, then stated standards |
Adjustments | Add-backs, exclusions, central costs and group transactions |
Buyer conduct | Ordinary course, no diversion, consent or anti-avoidance terms |
Procedure | Statement date, objection content, notice method and expert process |
Payment | Cap, floor, interpolation, set-off, due date and interest |
Caira can compare an uploaded SPA, earn-out statement, management accounts, invoices and spreadsheet model, pulling the key definitions and deadlines into one place.
Do not assume “EBITDA” is objective. The contract may freeze policies at completion, exclude acquisition costs or prescribe customer attribution. ClearCourse v Jethwa [2023] EWHC 1122 (Ch) illustrates disputes involving revenue definitions, profit-and-loss figures and related accounting material.
Rebuild the calculation line by line
Keep raw data unchanged and formulas visible. For each adjustment record an ID, amount, month, ledger account, source document, SPA clause, rationale and status. Separate arithmetic from classification.
An agency’s buyer adds group-management and central IT charges. Those costs are genuine, but the SPA says EBITDA follows past practice and excludes acquisition-related central charges. The real question is contractual permission, not whether an invoice exists.
A software buyer migrates customers to another group entity, so recurring revenue disappears from the acquired company’s ledger. Match every customer to contract, invoice, receiving entity and the SPA’s attribution rule. Then test any no-diversion or ordinary-course covenant.
A broker remains CEO but fails to report that a major client may leave. The buyer alleges breach and deducts the entire forecast loss. Breach, causation and net financial loss remain separate questions; the face value of the withheld amount is not automatically the loss.
Caira can turn these rows into an easy-to-understand issue schedule showing the buyer’s figure, seller’s figure, variance, clause and evidence.
Procedure can beat the better calculation
An SPA may allow only 10 or 20 business days to object and require every disputed line plus the proposed correction. A vague reservation may fail. Build a deadline table covering delivery, objection, response, expert appointment and payment.
Follow the notice clause literally: recipient, address, permitted method and deemed receipt. Email is not necessarily valid. Accounting disputes may go to an independent expert while contract interpretation stays outside that expert’s remit. Also check whether set-off is permitted and whether the buyer validly notified and quantified the separate warranty claim.
Section 5 of the Limitation Act 1980 generally gives six years for a simple-contract action, but it does not rescue a missed contractual calculation or objection deadline.
Tax must follow the right actually created. HMRC describes earn-outs as potentially unascertainable deferred consideration and distinguishes cash, securities and employment-related arrangements in ERSM110900. Preserve the completion tax computation and valuation. If a settlement is reached, separate additional sale consideration, compensation, interest, costs and any employment element rather than applying one label to all of it.
Caira has a 14-day free trial, then plans from about £15 a month.
Questions people often hesitate to ask
Can the buyer run the business differently?
Usually yes, subject to the SPA’s express operating covenants. Map each challenged decision to actual wording.
Does leaving as CEO cancel my earn-out?
Not automatically. Check whether continued employment is an express condition and preserve independent SPA information rights.
Can the buyer deduct another claim?
Only if the set-off and claim-notification provisions permit it. A complaint is not automatically a right to retain payment.
Is email enough to object?
Only if the notice clause allows it and your message supplies the required particulars.
This article is general information, not legal, financial, tax or medical advice.
