We are five years from an exit and want to clean up our legal and contract foundation. What specific issues with our customer agreements will buyers target, and how do we resolve them now?

Question

Tyler Smith · Accepted Answer

A buyer's legal due diligence team will carefully review your customer contracts to find any reason to discount your purchase price or hold back funds. If your contracts are outdated, missing, or structured poorly, you risk losing deal momentum. The first major issue is the assignability clause. Many standard business agreements state that the contract cannot be assigned to another entity without the customer's written consent. This is a major hurdle in an asset sale. On your five-year runway, systematically update your standard agreements to ensure they are fully assignable to a buyer in the event of a transition. The second issue is contract duration and termination terms. Buyers pay a premium for predictable, recurring revenue. If your agreements are loose handshake deals or allow customers to terminate without cause on short notice, your revenue is deemed high-risk. Transition your key clients to multi-year agreements with clear auto-renewal clauses. Start this cleanup process early as a quarterly Rock. Work with an experienced transactional attorney to audit your master services agreements. By professionalizing your legal foundation years before a sale, you ensure a clean due diligence process and prove to buyers that your customer relationships are stable and transferable.