Earn-out Risk
Short definition
Earn-out risk is variance and conflict from the definition, control and cash timing of contingent consideration. For the buyer it is a hidden maturity wall; for the seller an uncollectible receivable.
Detailed explanation
Gaming: starving investment, shifting cost, transfer pricing. An accounting-policy change breaks the metric.
In the cash plan the earn-out fights covenants (no extra debt) and integration. Fair-value accounting brings mark-to-market noise into the P&L.
Why it matters for the CFO
Showing a small close cheque and forgetting the earn-out produces cash and a dispute in month 13.
How to read it
The maximum earn-out should be written into the stressed cash cap; expected value alone is not enough.
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What to learn next
Definitions are educational. They are not investment, credit or tax advice.