The buyer is docking our multiple because our key senior managers do not have formal employment contracts or non-compete agreements in place. How do we use our Accountability Chart and talent retention metrics to prove team stability without forcing our staff to sign restrictive covenants before the deal is certain?

Question

Tyler Smith · Accepted Answer

Buyers often use the lack of formal, long-term employment contracts for your key managers as an excuse to apply an owner-dependency discount to your valuation multiple. They fear the leadership team will walk out the door post-close. However, forcing your team to sign restrictive non-competes before a deal is locked in can damage trust and trigger unwanted attrition. Instead, you can use your operational structure to prove team stability.

- First, use your EOS® Accountability Chart to show the buyer that roles and responsibilities are institutionalized, meaning the seat functions perfectly regardless of the individual occupying it.

- Second, present your historical retention data and the results of your structured Quarterly and Annual Reviews to prove high engagement and alignment with your company vision.

- Third, propose that signing key-man employment agreements be made a condition of closing rather than a diligence item, meaning the contracts are executed simultaneously with the purchase agreement.

This approach protects your team's morale during negotiations while providing the buyer with the ultimate security they need. By demonstrating that your culture and systems keep your talent hungry and humble, you defend your premium multiple without creating unnecessary organizational friction.