Many of our largest clients are on month-to-month agreements because we have always trusted each other, but a buyer will want to see long-term contracts. How do we transition these handshake deals into formal, transferable multi-year agreements during our runway without raising suspicion?

Question

Tyler Smith · Accepted Answer

Handshake agreements and month-to-month contracts are comfortable for founders, but they are a massive red flag for buyers who equate them with customer churn risk. A sophisticated acquirer will heavily discount your valuation multiple or demand a large indemnity escrow if your top revenue-generating clients can walk away with thirty days notice. During your exit runway, you must systematically transition your critical client relationships into formal, multi-year contracts that include clear transferability and change-of-control clauses. To do this without raising suspicion or alarming your customers, frame the transition around value and predictability. Use the Trust Creation Process to engage with your top accounts. Explain that to support their long-term growth and guarantee service levels, you are formalizing your partnerships with multi-year service level agreements. Offer predictable pricing or dedicated resource allocation in exchange for a committed term. This other-focused mindset turns a legal administrative task into a relationship-building opportunity. Ensure every contract contains an assignability clause, which allows the agreements to transfer seamlessly to a buyer without requiring customer consent during the transaction. Securing your recurring and re-occurring revenue through binding, transferable agreements provides the buyer with the predictable cash flow they are paying for, directly maximizing your enterprise value.