How is a cumulative earnout defined?

A cumulative earnout is indeed defined as a payment made at the term's expiration, which can include or exclude interest depending on the specific terms outlined in the contract. This type of earnout structure allows for the accumulation of performance metrics over time, leading up to a final calculation at the end of the specified term.

In this context, a cumulative earnout typically relates to companies or real estate transactions where payments are contingent upon certain financial milestones or performance indicators achieved over the course of a deal. This structure can be beneficial as it aligns the interests of the parties involved, ensuring that earning potential is tied to actual performance outcomes rather than predetermined payments.

Understanding this concept is important as it fundamentally shapes how parties negotiate contracts and forecast potential revenues. It encourages ongoing performance, signaling to the seller that they should aim to meet or exceed the established benchmarks, knowing that they will receive their payment only if those goals are achieved by the end of the term.