One of our oldest clients represents twenty-five percent of our revenue, and the buyer wants to put ten percent of our purchase price into an indemnity escrow specifically tied to this account's retention. How do we negotiate a structures-based alternative, like a sliding-scale contingent note, to keep them from holding our cash hostage over variables we cannot control post-close?

Question

Tyler Smith · Accepted Answer

Accepting a broad indemnity escrow for customer concentration is a massive risk because it gives the buyer little incentive to maintain the relationship post-close. If they mismanage the client and the client leaves, you lose your hard-earned money. Instead of a traditional escrow, you should propose a contingent payment structure, such as a performance-adjusted seller note or a split-tier earnout.

In this structure, the purchase price remains intact, but a portion of the payments is tied directly to the revenue generated by that specific customer over a twelve or eighteen month period. To make this work, you must negotiate strict operational covenants in the purchase agreement. These covenants must prevent the buyer from changing the service level, raising prices, or altering the terms of the customer contract without your consent during the transition period.

To defend your position during negotiations, use your EOS Accountability Chart to prove that this major account is institutionalized. Show the buyer that the client relationship is managed by a structured team, rather than being personally dependent on you as the owner.

Present the client's historical stability and show how your team uses weekly Scorecard metrics to track delivery health. When you prove that your operations team has the GWC to run the account and that your Level 10 Meetings keep performance on track, you demonstrate that the concentration risk is already mitigated. This allows you to push back on punitive escrows and secure a more favorable, structured note.