Earn-outs and clawback when selling a practice

How practice deals are usually paid

ICAEW's guide describes the pattern: "It is normal for acquisitions to be paid for over a period of one or two years, but if you want payment up front you may need to take a drop in price" (ICAEW). ICAEW's ethics helpsheet notes the range is wider still in practice, from everything on completion to instalments over a number of years, and that payment over a period can be treated as a loan with interest expected or reflected in a higher price.

What clawback actually is

Clawback reduces the price if clients leave after completion. In ICAEW's words: "If clients do not stay with the new buyer then there is usually a provision to clawback the payment on these fees. Unless the sale contract says otherwise any lost fees can be offset by increases on other clients' fees. The clawback may be 100% of the lost GRI in the first 12 months or there may be a further 50% clawback for 12-24 months."

ICAEW's helpsheet frames why buyers want it: clawback "can avoid payment for something that does not materialise or exist and create interest by the seller in making an effort to ensure success". That second half matters. A clawback is also the buyer's way of keeping you engaged through the handover.

The five terms to negotiate, in order

The baseline

Is retention measured against the client list at completion, against the fee value at completion, or against fees actually billed in year one? A list-based test and a value-based test produce very different answers when a large client leaves.

The offset

ICAEW's guide notes that unless the contract says otherwise, lost fees can be offset by increases on other clients' fees. Get that in writing rather than relying on it.

The period

Twelve months is common, twenty-four with a reduced rate in the second year is also common. A longer period is not automatically worse if the rate falls.

The cause

Should you be clawed back for a client the buyer loses through poor service, a fee increase you did not agree, or a change of office? Carve-outs for buyer-caused losses are negotiable and often conceded.

The cap

An uncapped clawback against an unpaid deferred balance is one thing. A clawback that can reach back into money already paid to you is another. Cap it.

The tax point most sellers miss

Deferred and contingent consideration has its own Capital Gains Tax treatment, and it is possible to be taxed on consideration you never ultimately receive. Business Asset Disposal Relief charges 18% on qualifying gains disposed of from 6 April 2026, capped at £1,000,000 of lifetime gains (gov.uk). Get the tax treatment of the earn-out advised before you sign, not after.

Ask every buyer for their worst-case number, not their headline. A 1.2 multiple with 100% clawback for 24 months and no offset can pay less than a 0.9 multiple with a 12-month capped test.