Seller note vs Earn-out

Both deal structures can be effective, provided they are well-defined. When incorporating an earn-out, it is critical to ensure that clawback clauses are precisely articulated. Additionally, a key decision point will be determining the extent of the seller's involvement after the closing. Clear terms in these areas are essential for a successful agreement Having a seller being involved post closed is neither good or bad. Sellers can manipulate the deal or help you close additional deals.

As Jason pointed out, there are potentially tax implications that will impact the seller's perspective. But realistically, no seller will want an earn-out versus a deferred payment as it represents more risk. But where I have seen earn-outs work well, is when they are super simple, and the ability to achieve the result is in the hands of the vendor. Typically some form of revenue metric is best. Keep in mind that the world is littered with stories of buyers structuring things to screw sellers out of that final payment. So make sure you are agreed on what is real, and what both parties believe is the right approach, and the the true intent is captured in the contract for sale.