Our signed LOI prohibits us from making any capital expenditures over fifty thousand dollars without buyer approval before closing, but we need to purchase new servers to support a major new client contract. How do we handle this operational restriction without stalling our business growth or violating the LOI?

Question

Tyler Smith · Accepted Answer

This is a classic pre-closing friction point. Buyers use interim operating covenants in the Letter of Intent to prevent sellers from stripping cash or making risky investments before the deal closes. However, these covenants can easily paralyze your day-to-day operations and damage your long-term value.

To handle this, you must run your business as if the transaction is not happening. Never stall your growth for a deal that has not closed yet.

First, bring the issue directly to the buyer with a clear business case. Show them that this fifty-thousand-dollar expenditure directly supports a major new contract that will increase the run-rate revenue of the business they are buying. Frame the purchase not as an expense, but as an immediate value driver that boosts their post-close return on investment.

Second, if they hesitate or delay their approval, use it as a test of their partnership and speed. In your weekly leadership team meetings, identify this bottleneck and push the buyer's deal team for a decision within forty-eight hours.

If they block a critical growth investment, they are showing you how they will behave as partners post-close. Be prepared to invoke First Hill Partners' philosophy of maintaining walk-away leverage if they attempt to micromanage your operations before they own the keys.