We are considering a structure with a performance-based earnout, but we are worried about losing control of our day-to-day metrics post-acquisition. How do we structure the earnout dispute resolution process using our internal operating metrics as the final authority?

Question

Tyler Smith · Accepted Answer

When you agree to an earnout, you are taking on the risk of post-closing operational interference. If the buyer changes your operating model, reallocates resources, or delays key hires, they can easily cause you to miss your performance targets. To protect yourself, you must structure the dispute resolution and operational governance clauses using your existing operating metrics as the source of truth. Insist that the purchase agreement references your weekly scorecard and quarterly Rocks as the primary framework for measuring operational health. Define specific operational covenants that prevent the buyer from altering your delivery processes, cutting your marketing budget, or reassigning key personnel without your written consent. If a dispute arises over whether an earnout milestone was met, specify that an independent accountant will review the financial results, but an independent operational mediator will evaluate compliance with the operational covenants. By hardcoding your EOS® metrics and scorecard targets into the legal agreement, you create an objective, data-driven shield. This prevents the buyer from manipulating your operations to avoid paying your earnout, ensuring your payout is based on true performance.