Earnout Calculator for Medical Practice Sales
Model the realistic payout on a healthcare practice earnout. Enter the deal size and earnout percentage from the LOI or pitch deck, and see cash at close, the earnout pool at stake, and what you are likely to receive under miss, likely, and hit scenarios. Industry data from ABA and AICPA suggests earnouts pay out at 50 to 70 percent of stated targets on average, not 100.
The rule of thumb: the cash at close should be a number you would accept even if the earnout paid zero. No email required.
Deal inputs
Enter the headline deal terms from the LOI or pitch deck.
What you will likely get
Post-close performance typically delivers 50-70% of stated earnout targets per ABA M&A data. Know your realistic floor before signing.
Cash at close (your floor)
$8.50M
$8,500,000. This is what you get even if the earnout pays zero.
Earnout pool at stake
$1.50M
$500K per year over 3 years
Miss case (20% of target earnout)
Practice dips post-close, typical after owner hands over
$8.80M
Likely case (60% of target)
Industry median post-close performance
$9.40M
Hit case (100% of target)
Full earnout paid, the headline number
$10.00M
Rule of thumb: the floor (cash at close) should be a number you would accept without the earnout ever paying a dollar. If the cash at close alone does not get you there, the deal economics depend on the earnout, and the earnout depends on decisions you will not control after close.
How earnouts actually work
Why the headline number is rarely what you get
- →Post-close dip is normal. Most practices see a temporary revenue or EBITDA dip of 5 to 15 percent after the owner steps back. The earnout tests performance during this exact dip.
- →Buyers add corporate costs. PE buyers often allocate management fees, shared services, and platform overhead to the acquired entity. That allocation reduces measured EBITDA against which the earnout is tested.
- →Operational decisions change. Marketing spend, staffing decisions, and capital expenditure shift to the buyer post-close. If the buyer cuts spending to improve margin elsewhere, your earnout metric can suffer.
Negotiation levers
What to push on before signing
- →Pin down EBITDA definition. Specify in the purchase agreement exactly how EBITDA is calculated for earnout purposes, including what allocations the buyer can and cannot add.
- →Negotiate a cure period. If you miss year one by 10 percent but hit year two by 20 percent, can you catch up? A cure provision lets the earnout pay out on cumulative performance, not annual.
- →Convert some earnout to cash. Trading earnout dollars for lower cash at a discount (for example, $1M of earnout for $700K cash) transfers risk to the buyer. Sometimes worth it.
- →Get operational control commitments. If the earnout depends on marketing spend, staffing levels, or pricing, get those commitments in writing.
FAQ
Questions about earnouts in practice sales
What is a realistic earnout payout percentage?
Industry data from ABA and AICPA M&A sources suggests earnouts pay out at 50 to 70 percent of the stated target on average. Practices often dip post-close once the owner hands over day-to-day control, missing EBITDA thresholds by 10 to 25 percent even under normal operations. Use 60 percent as a realistic planning assumption.
What earnout percentage is typical in healthcare practice sales?
Earnouts typically run 5 to 20 percent of total consideration. Lower percentages show up in clean deals where the buyer trusts the growth story. Higher percentages signal the buyer disagrees with the seller's run rate and wants to share that risk. More than 25 percent in earnout usually means the deal is priced off pro forma EBITDA the buyer does not fully believe.
How long do earnout periods last?
Most healthcare earnouts run 1 to 3 years. Longer periods (4 to 5 years) sometimes show up in physician-heavy deals where the buyer wants the selling physician to stay engaged clinically. The longer the earnout, the more operational control issues compound — who decides marketing spend, hiring, and capital expenditure during the earnout period.
What is the single biggest earnout negotiation mistake?
Not locking down how EBITDA is defined. Buyers routinely add corporate allocations, management fees, or overhead charges to the acquired entity that reduce the measured EBITDA the earnout is tested against. If the definition of EBITDA for earnout purposes is not pinned down in the purchase agreement, expect the earnout to miss.
Should I accept a deal with a large earnout?
Only if the cash at close is a number you would accept without the earnout paying a dollar. Assume the earnout pays 50 to 70 percent of the target. If those numbers get you to acceptable total proceeds, the earnout is a bonus. If you need the full earnout to justify the deal, you are taking risk you do not control.