Can You Get Paid for Your Business’s Growth Potential?
By Troy Frank, Owner — Indiana Equity Brokers
[Estimated read time: 7 min]
The short answer: Buyers pay for the earnings your business has already proven, not the growth you expect. If you want to be paid for future growth, the usual tool is an earn-out — part of the price paid after closing, only if the business hits agreed targets. Earn-outs showed up in 35% of lower middle-market deals under $25 million, according to SRS Acquiom. On most Main Street sales, though, SBA rules don’t allow earn-outs, so growth gets paid for through a seller note or a better-structured price.
An owner sits across the table from me. He has a lease picked out for a second location. He has two techs ready to hire. He’s sure revenue will jump 40% in two years. And he wants to be paid for that jump today.
I understand why. He built the plan. He sees it clearly.
But buyers don’t pay for plans. They pay for results they can verify. That doesn’t mean your growth potential is worth nothing. It means it gets paid for differently. This article covers how an earn-out business sale works, when it makes sense, and the other ways Indiana owners get paid for the upside.
Why Buyers Won’t Pay Today for Tomorrow’s Growth
Most small businesses are priced as a multiple of seller’s discretionary earnings (SDE). In the second quarter of 2026, the average business sold for about 2.7 times its cash flow, according to BizBuySell’s Insight Report.
That multiple is applied to what you earned. Usually the last 12 months, or an average of the last three years. Not next year’s forecast.
There’s a practical reason for this. The buyer is usually borrowing. BizBuySell found that 78% of buyers expect to use SBA financing. An SBA lender underwrites your tax returns. It will not lend against a projection.
So the lender caps what the buyer can pay. The cap is set by the cash flow that already exists.
There’s a second reason, too. If the buyer pays for your growth up front, the buyer takes all the risk of delivering it. Then the buyer does the work. Most buyers see that as paying twice.
What Is an Earn-Out in a Business Sale?
An earn-out is a portion of the purchase price that depends on future results. You get it only if the business hits a target after closing.
Here is a simple example. A business earns $400,000 in SDE. The buyer pays $1,000,000 at closing. The deal adds up to $200,000 more over two years if gross revenue tops $2.5 million each year.
Hit the number, you get paid. Miss it, you don’t.
The Three Parts of Every Earn-Out
- The metric. Revenue, gross profit, or EBITDA. Revenue is the hardest for a buyer to manipulate. EBITDA is the easiest.
- The period. Usually one to three years. Shorter is better for you.
- The payout. All-or-nothing, or scaled to how close you get. Scaled payouts cause fewer fights.
The SBA Problem
This is the part most owners don’t know. SBA 7(a) loan rules do not allow earn-outs when the loan is funding a change of ownership. The full price has to be fixed at closing.
That matters because most Main Street businesses in Indiana sell with SBA financing. So for a $300,000 to $5 million deal, an earn-out often isn’t on the table. It shows up more in deals with private equity, strategic buyers, or buyers paying cash.
Myth vs. Reality: “An Earn-Out Is Free Money”
The myth: An earn-out is a bonus. If the growth happens, you win. If not, you still got a fair price.
The reality: Once you close, you don’t run the business. The buyer does.
The buyer decides the pricing. The buyer decides the hiring. The buyer decides whether that second location opens. Every one of those choices affects whether you hit the target.
That’s why most earn-out disputes aren’t about math. They’re about control. A buyer who cuts marketing to boost cash flow can sink your revenue target without doing anything wrong.
In our experience, sellers should treat an earn-out as money they might get. Not money they will get. Price the guaranteed part of the deal so you’re happy with it alone.
How to Protect an Earn-Out
- Use revenue or gross profit, not net income.
- Keep the period at two years or less.
- Get the right to see the books every quarter.
- Require the buyer to run the business in the normal course. No starving it of resources.
- Make the full earn-out due if the buyer resells the business.
Your transaction attorney should draft all of this. Don’t accept one sentence in the letter of intent and “details to follow.”
Other Ways to Get Paid for the Upside
An earn-out isn’t the only tool. On most Indiana deals, these work better.
A seller note. You finance part of the price and get paid over time, with interest. BizBuySell found that 90% of buyers expect seller financing. Only 29% of sellers plan to offer it. That gap is an opening. A seller willing to carry a note often gets a stronger price, because the buyer needs less cash and the lender sees you have skin in the game. We cover the tradeoffs in our guide to seller financing.
A consulting or transition agreement. You stay on for a set period and get paid for it. This is compensation for work, so it’s taxed differently than sale proceeds. Talk to your CPA.
Rollover equity. With a private equity buyer, you may keep 10% to 30% of the company. If they grow it and sell again, you share in the upside. This is common above $3 million in earnings. It’s rare below that.
A higher multiple, earned honestly. If your growth is already showing up in the numbers, it counts. A business whose earnings rose three years in a row gets a better multiple than a flat one. That is the cleanest way to get paid for momentum.
The Deal Has to Work for the Buyer, Too
A price is only real if a buyer can pay it and still succeed.
Lenders test this with debt service coverage. They typically want the business’s cash flow to cover the loan payments by at least 1.25 times. If the price is so high that the payments eat all the profit, the lender says no. The deal dies, no matter how much the buyer wants it.
This is where good structure beats a big number. A fair price, a modest seller note, and a clear transition plan close. An inflated price with nothing behind it doesn’t.
It’s also why buyer qualification matters. Before we release your financials, we confirm the buyer has the cash, the credit, and the experience to operate. A buyer who can’t close wastes months. And it puts your confidentiality at risk. Structure is one of several terms that decide how much of an offer you actually keep.
Frequently Asked Questions
What is an earn-out when selling a business?
An earn-out is part of the purchase price that is paid after closing, only if the business hits agreed targets. The target is usually revenue, gross profit, or EBITDA over one to three years. It lets a seller get paid for growth that hasn’t shown up in the financial statements yet.
Can you use an earn-out with an SBA loan?
No. SBA 7(a) rules do not allow earn-outs when the loan funds a change of ownership. The full price must be fixed at closing. On SBA deals, sellers usually handle growth potential through a seller note or a transition agreement instead.
Do buyers pay for a business’s growth potential?
Rarely at full value. Buyers and lenders price a business on its proven earnings, usually a multiple of the last 12 months to three years of cash flow. Growth that already shows up in rising earnings can support a higher multiple. Growth that exists only in a forecast is usually paid for through an earn-out or not at all.
How long does an earn-out usually last?
Most earn-outs run one to three years. Shorter periods are better for sellers. The longer the period, the more the results depend on the buyer’s decisions rather than the business you built.
Is seller financing better than an earn-out?
For most Main Street sellers, yes. A seller note is a fixed debt the buyer owes you, with interest, whether or not the business grows. An earn-out is paid only if targets are hit, and the buyer controls the business that has to hit them. A seller note also works with SBA financing, while an earn-out does not.
Getting Paid for What You Built
Your growth potential has value. But buyers pay for proven results first. The upside gets paid through structure — a seller note, a transition agreement, or an earn-out when the deal allows one.
The goal isn’t the biggest headline number. It’s a deal the buyer can finance, that closes, and that pays you what you expect.
Indiana Equity Brokers has closed more than 884 business sales and over $816 million in transactions. If you’re weighing how to get credit for where your business is headed, a confidential conversation costs nothing. Reach Troy Frank at troy@indianaequitybrokers.com, call (317) 333-6655, or schedule a call at indianaequitybrokers.com.
