Many of our key client and vendor contracts have been in place for years without formal updates. What contract terms do we need to clean up and standardize over our exit runway so we do not hit legal roadblocks during due diligence?

Question

Tyler Smith · Accepted Answer

Many private business owners rely on handshake agreements or outdated contracts with their key clients and vendors. This lack of formal documentation is a major red flag for buyers and can stall a transaction during due diligence.

You must systematically audit all key contracts at least two years before you plan to sell. The most critical term to analyze is the assignability or change of control clause. Many legacy contracts state that the agreement terminates if the business is sold.

Work with your legal counsel to update these contracts to ensure they can be assigned to a buyer without prior written consent, or that consent cannot be unreasonably withheld.

Standardizing these agreements during your exit runway protects your business valuation, minimizes transaction friction, and prevents key customers or vendors from using the pending sale as leverage to renegotiate their terms or lower their rates.