Our operations rely heavily on a single proprietary supplier with whom we only have a handshake agreement. How do we formalize this supply chain dependency on our exit runway without upsetting our vendor?

Question

Tyler Smith · Accepted Answer

A handshake agreement with a critical supplier is a massive red flag for a buyer's due diligence team. If that supplier raises prices, experiences operational failure, or terminates the relationship, your business model falls apart. To secure your exit valuation, you must institutionalize this supply chain dependency. Start by having an open, professional conversation with the vendor. Frame the conversation around mutual growth and long-term stability, explaining that you want to formalize your partnership to support your long-term business planning. Your goal is to secure a written, multi-year supply agreement that defines pricing structures, lead times, quality standards, and, crucially, a change-of-control provision. This provision ensures the contract remains fully transferable to a new owner upon sale. In parallel, use your EOS® Level 10 Meeting™ to run the IDS® process on your supply chain vulnerability. Task your leadership team with identifying and vetting secondary backup suppliers. Even if you continue to buy primarily from your main vendor, having qualified alternative suppliers proves to a buyer that your business can survive a supply chain disruption. Showing a buyer a documented, transferable contract alongside a viable backup plan turns a major risk factor into a solid, operational asset.