The buyer's draft purchase agreement between LOI and close includes strict interim operating covenants forbidding new hires, compensation changes, and capital expenditures over twenty-five thousand dollars. How do we negotiate these operating restrictions so we do not paralyze our business during a four-month closing window?

Question

Tyler Smith · Accepted Answer

Interim operating covenants are designed to preserve the business between signing the letter of intent and final closing. However, overly restrictive terms will freeze your growth and damage operations if the buyer delays or walks away.

You must preserve your authority to execute your operating plan without seeking buyer permission for every operational decision:
- Establish negative covenant baskets tied to your approved annual budget. Frame the covenant to state that the seller may operate in the ordinary course of business consistent with past practice and within the parameters of the budget provided during diligence.
- Pre-approve specific strategic initiatives. Carve out active quarterly Rocks, planned capital projects, and open hiring positions directly into the disclosure schedules of the purchase agreement.
- Raise the expenditure thresholds. A twenty-five thousand dollar limit micromanages mid-market companies. Push that threshold to an amount that reflects normal operational purchasing velocity, such as fifty thousand or one hundred thousand dollars depending on your revenue scale.
- Implement a deemed consent mechanism. Require the buyer to review any formal consent request within five business days. If the buyer does not object in writing within that window, the expenditure or hiring decision is automatically deemed approved.
- Protect compensation reviews. Allow regular, scheduled merit increases that follow historical company timing and policy for non-executive staff.

Keep your leadership team focused on quarterly Rocks and Scorecard execution during this period. Never let an unclosed deal dictate how you lead your everyday business.