A significant portion of our purchase price will be tied up in an earn-out and a seller note, making us highly dependent on the buyer's future performance. How do we objectively evaluate the buyer's operational systems and leadership team during negotiations to ensure they do not destroy our business and default on their payments?

Question

Tyler Smith · Accepted Answer

When your payout is tied to future performance, you are effectively investing in the buyer. You must perform rigorous operational due diligence on them just as they do on you. Do not let your eagerness to close the deal cloud your judgment. Treat negotiations as a two-way evaluation.

Start by asking the buyer about their operating system. Do they have a structured framework for managing daily execution, or do they rely on ad hoc decision-making? Ask to review their Accountability Chart to see if their leadership team has clear roles and responsibilities. If they lack operational structure, it increases the risk of post-close disruption.

Evaluate their financial capacity and operational track record with previous acquisitions. Speak with other founders who have sold to them to learn about their integration process. If the buyer is disorganized, they may struggle to maintain your margins, putting your earn-out and seller note at risk. By asking tough questions and evaluating their systems, you protect your financial future and ensure a successful partnership.