The buyer wants an earnout based on EBITDA, but we want to anchor it to top-line growth and key operational measurables from our EOS Scorecard to avoid accounting manipulation. How do we pitch this?

Question

Tyler Smith · Accepted Answer

An EBITDA-based earnout is a minefield because post-close accounting is completely controlled by the buyer. They can easily allocate corporate overhead, adjust management fees, or accelerate capital expenditures to artificially suppress your EBITDA and wipe out your payout. To protect your hard-earned equity, you must push to anchor the earnout to top-line revenue combined with specific operational milestones from your EOS Scorecard.

Pitch this to the buyer as a win-win scenario that aligns with strategic growth. Explain that top-line revenue is clean, objective, and difficult to manipulate through creative accounting. To address their concerns about profitability, tie the payout to maintaining key operational measurables from your EOS Scorecard, such as customer retention rates, delivery accuracy, or project margin minimums.

This framework proves to the buyer that you are focused on healthy, profitable growth rather than low-margin sales. More importantly, it keeps the earnout metrics within your operational control, ensuring that their post-closing corporate adjustments cannot strip away your enterprise value at the end of the transition period.