Our Step by Step Exit Business Integrity Review revealed that while our EBITDA is strong, we have significant legal and operational debt from outdated employment agreements and unwritten intellectual property assignments. How do we clean up these structural liabilities before we sign an LOI to prevent the buyer from using them to chip away at our negotiated multiple?

Question

Tyler Smith · Accepted Answer

When an owner decides to sell, they often focus entirely on boosting their EBITDA while ignoring the operational and legal debt lurking in their corporate structure. During due diligence, a buyer's legal team will systematically hunt for unwritten independent contractor agreements, missing intellectual property assignments, and outdated employment contracts. If they find these structural liabilities, they will use them as leverage to reduce your multiple or demand massive indemnity baskets.

To prevent this value leakage, you must identify and resolve these issues before you go to market. Running a Step by Step Exit Business Integrity Review allows you to audit your business through a buyer's quantitative and qualitative lens. This review acts as an early warning system, flagging brittle administrative processes and incomplete legal documentation.

Use your quarterly Rocks to systematically clean up these vulnerabilities. Ensure every employee has signed a standard invention assignment agreement, secure written contracts for all key vendors, and formalize any loose independent contractor relationships on your Accountability Chart. Resolving these operational liabilities early ensures that when a buyer launches due diligence, your corporate structure is bulletproof. This level of preparation eliminates the buyer's ability to renegotiate your multiple over administrative issues, keeping your valuation intact.