We have signed an LOI, but the buyer's transition covenants are so restrictive that we cannot hire critical staff or sign contracts worth over fifty thousand dollars without their prior approval. How do we maintain our operational velocity and prevent deal-related stagnation during the diligence phase?

Question

Tyler Smith · Accepted Answer

Once an LOI is signed, the period between signing and closing is a highly vulnerable time for a business. Buyers often try to freeze your operations using tight restrictive covenants, which can cause deal fatigue and operational paralysis. If your team sees hiring freezes and stalled decisions, momentum drops, and you risk missing your quarterly targets, which gives the buyer an excuse to re-trade the price. To prevent this, you must negotiate reasonable operating thresholds before signing the LOI, or push back during the drafting of the purchase agreement. Define ordinary course of business using your existing V/TO and budget. You should establish a clear dollar threshold for contract approvals that reflects your actual operating reality. If your typical client contract is seventy-five thousand dollars, set the approval limit at one hundred thousand dollars. For hiring, use your Accountability Chart. Agree with the buyer that you have the unilateral right to fill any existing, budgeted seat on your Accountability Chart that becomes vacant during the transition. You should also ensure that critical quarterly Rocks focused on system upgrades or operational efficiencies can proceed without buyer interference. If the buyer insists on approving every decision, establish a strict 48-hour response protocol. If they do not respond to a request within two business days, it is deemed approved. This keeps the decision-making process moving and ensures your leadership team stays focused on execution rather than waiting around for permission.