We signed an LOI and the buyer's legal draft includes a covenant requiring their written approval for any operational expenditure over ten thousand dollars during the diligence period. How do we negotiate this threshold so we can still run our business, execute our quarterly Rocks, and maintain our operational rhythm?

Question

Tyler Smith · Accepted Answer

A ten-thousand-dollar spending limit will paralyze your business and distract your leadership team at the exact moment you need to maintain peak performance. Buyers use these tight ordinary course covenants to gain premature operational control and peek into your daily cash management.

To protect your operational rhythm, you must push back on this threshold during the initial draft of the purchase agreement.

First, calculate your actual historical spending patterns. Look at your monthly cash outflows and establish a realistic threshold that reflects your normal operations. For a mid-market business, this limit should be set at fifty thousand or one hundred thousand dollars, or structured as a percentage of your monthly operating budget.

Second, create specific exclusions for budgeted expenditures. Any expense that is already approved in your annual budget or aligned with the goals on your V/TO® should be automatically permitted without buyer approval.

Third, ensure you have an emergency carve-out. If an unexpected operational issue arises, you must have the authority to spend what is necessary to maintain business continuity.

Explain to the buyer that your leadership team runs on EOS® and needs the autonomy to execute their quarterly Rocks and run their weekly Level 10 Meeting™ without waiting for external legal clearance. If you allow the buyer to micromanage your spending, your operational metrics will slip, which will give the buyer the exact excuse they need to renegotiate the purchase price at the closing table. Keep the boundary clear: until the wire transfers, you run the company.