Earn Outs and Target Payments often get used interchangeably, but they are different concepts. Both are good mechanisms for reducing risk to the buyer while benefiting the seller with some upside. It is good to know the difference and when and how best to use them in a deal structure.

Just worked with a SEARCHFUNDER buyer who has limited experience and believes that a seller fits into the seller finance area with either a note or earn out.. No amount of explanation could convince him that one was contingentredactedthe Earn Out..... which is based on future performance of the company where seller has no control. The seller note is based on the seller carrying some financing like an outside lender where regular payments are made from buyer to seller. The buyer was convinced that both mechanisms were the considered seller financing and that these were done in larger deals. I talked to numerous M&A attorneys and intermediaries, and all said they's never heard that and neither have I.