The buyer wants us to accept a massive performance earnout based on future top-line revenue growth, but they plan to take over our operational control post-close. How do we structure an operational covenants agreement within the purchase contract to guarantee they cannot starve our product development or sales budget during the earnout period?

Question

Tyler Smith · Accepted Answer

Accepting a revenue-based earnout while handing over the keys to your business is a recipe for paying a painful dumb tax. If the buyer controls the operational levers post-close, they can easily starve your sales budget, delay product updates, or reallocate your key talent to other divisions, crushing your ability to hit those top-line targets. To protect your payout, you must negotiate strict operational covenants directly into the purchase agreement. These covenants should mandate that the buyer maintains your historical budget levels for marketing, sales, and product development during the earnout period. Furthermore, you must retain leadership authority over your team. Use your EOS Accountability Chart to define who has decision-making power over resource allocation, hiring, and firing within your business unit. Require that any material changes to your operating budget or strategic plan must be approved in writing by you. You should also include a clause stating that if the buyer fails to meet their funding commitments or integrates your team into a different corporate structure, the earnout is immediately deemed fully achieved and paid out. Do not let the buyer centralize your operations unless they are willing to pay for that control upfront. By establishing these guardrails, you ensure that your team can focus on their Rocks and hit their targets without interference from corporate overhead or bureaucratic delays.