The buyer is proposing a deal structure with only fifty percent cash upfront, with the rest split between a seller note and a performance-based earnout. How do we stress-test this structure to ensure we actually collect the full purchase price without losing control of our operations post-close?

Question

Tyler Smith · Accepted Answer

A high purchase price on paper means nothing if you do not actually collect the money. When a buyer structures a deal with a massive earnout or a large seller note, they are shifting the transaction risk onto your shoulders. To protect your wealth, you must stress-test these structures before signing. For the seller note, you need to secure your position. Ensure the note has a personal guarantee from the buyer's principals or is secured by specific operational assets of the business. Negotiate a payment-in-kind toggle with a compounding interest penalty so that if their senior lender blocks cash interest payments, your yield increases rather than disappears. For the earnout, keep the targets operational rather than purely financial. EBITDA targets are easy for a buyer to manipulate post-close through corporate overhead allocations and shared service charges. Instead, tie the earnout to gross margin, unit volume, or customer retention metrics. Ensure you maintain operational control over the business unit during the earnout period. Use your EOS Accountability Chart to protect your team's autonomy, and write covenants into the purchase agreement that prevent the buyer from making material changes to your operating model or reallocating your resources. If they will not agree to these guardrails, demand more cash upfront.