The buyer wants to base our earnout on post-closing top-line growth but is refusing to commit to a specific marketing and sales budget in the transition plan. How do we contractually bind the buyer to support our post-close operations so we actually have the resources to hit our earnout targets?

Question

Tyler Smith · Accepted Answer

Accepting an earnout based on growth targets without securing a committed budget from the buyer is a recipe for disaster. Once the transaction closes, the buyer controls the checkbook. If they starve your sales and marketing departments of resources, you will miss your growth milestones, and they will keep the earnout money. You must protect yourself by negotiating operational and financial covenants upfront.

In your purchase agreement, you must define the exact resources, headcount, and budget required to achieve the earnout targets. Do not agree to vague language like reasonable efforts. Insist on a detailed schedule that specifies:

- A minimum monthly sales and marketing budget allocated specifically to your business unit
- The right to maintain your existing sales and marketing staff without reallocations to other corporate divisions
- Access to the buyer's distribution channels and customer databases as promised during negotiations

Additionally, ensure your leadership team retains control over the execution of these budgets. You should continue to run your business unit using your EOS model, keeping your Rocks and weekly scorecards focused on hitting the earnout milestones. By locking in these resource commitments contractually, you prevent the buyer from starving your operations and destroying your payout.