The buyer wants us to carry a seller note for fifteen percent of the transaction value but is refusing to give us a seat on the post-close board. How do we structure the financial covenants and acceleration triggers in that note using our existing operational KPIs to protect our capital without needing a board seat?

Question

Tyler Smith · Accepted Answer

When you accept a seller note without a board seat, you are essentially acting as an unsecured lender with zero operational control. To mitigate this risk, you must build protective guardrails directly into the note agreement. These guardrails should be tied directly to the operational health of the business, which you can monitor using high-level metrics derived from your historical weekly Scorecard. First, write an acceleration clause into the note that triggers an immediate demand for full payment if key leadership personnel leave the business. You can use your EOS® Accountability Chart to define these critical seats. If the buyer terminates your former Integrator or key department heads without your written consent, the note must become due immediately. Second, establish strict financial covenants. These should include maintaining a minimum debt service coverage ratio and a ceiling on total senior debt leverage. If the buyer violates these ratios, the interest rate on your seller note should automatically step up by several percentage points, or you should gain the right to appoint an independent observer to their management meetings. Finally, forbid the buyer from paying out owner distributions or management fees to their equity sponsors if the business falls below these operational benchmarks. By linking the terms of your seller note directly to the structural health of the organization, you protect your capital without needing to interfere in daily management.