If we accept an offer with an earn-out component, how do we use our EOS Scorecard and metrics to protect ourselves from a buyer manipulating our post-acquisition performance data?

Question

Tyler Smith · Accepted Answer

An earn-out is only as good as the metrics used to measure it. Buyers often try to structure earn-outs around net income or EBITDA, which they can easily manipulate after the sale through corporate overhead allocations and accounting adjustments. To protect your earn-out on your exit runway, you must define clear, objective operational milestones based on metrics you control. Focus on top-line revenue, customer retention rates, or unit delivery volumes rather than bottom-line profitability. Specify these metrics clearly in your purchase agreement, aligning them directly with the key performance indicators on your EOS Scorecard. Ensure the agreement guarantees that your operating unit will have the necessary resources, budget, and operational autonomy to hit those targets. Maintain your weekly Level 10 Meetings post-acquisition to track these earn-out metrics with absolute transparency. This operational discipline ensures both your team and the buyer's integration team stay focused on the agreed-upon performance goals, preventing subjective disputes and ensuring you receive your full purchase price.