A large portion of our top accounts work on purchase orders and handshake renewals rather than assignable, multi-year contracts. How does this contract structure impact our exit runway, and how do we fix it before going to market?

Question

Tyler Smith · Accepted Answer

Handshake deals and transactional purchase orders create massive perceived risk for institutional buyers. Acquirers value revenue based on its predictability and durability. If your largest accounts can walk away with thirty days notice or cancel on a whim, the buyer treats that revenue as uncommitted transactional volume. This results in lower valuation multiples, aggressive escrow holdbacks, or heavy earnouts tied to customer retention.

Fixing this requires an intentional twelve to twenty-four month initiative on your exit runway. Start by auditing your customer agreements inside your Level 10 Meeting. Categorize your revenue into three tiers: formal multi-year contracts, recurring service agreements with auto-renewal terms, and purely transactional purchase orders. Your goal is to systematically transition as much revenue as possible into formal Master Services Agreements with defined renewal mechanics, clear scopes of work, and standard assignment clauses.

Ensure every agreement contains a clean change-of-control or assignment provision. Institutional buyers and their lenders will scrutinize whether customer contracts require written customer consent prior to a sale. If twenty of your top customers have the right to terminate their agreements upon ownership change, each customer holds veto power over your transaction. Use standard contract renewals or scope expansion discussions to introduce updated terms that include reasonable assignment language. Moving your client base from verbal trust to institutional documentation directly increases cash at close and protects your enterprise valuation.