Most of our revenue comes from loyal, long-term clients, but we operate on handshake agreements or annual purchase orders rather than multi-year master service agreements. How do we transition these key relationships to formal, recurring contracts on our exit runway to prove revenue stickiness to a buyer?

Question

Tyler Smith · Accepted Answer

While handshake agreements and long-term customer loyalty show strong relationships, institutional buyers view them as high-risk liabilities. Buyers pay premium multiples for predictable, recurring revenue, and they will discount your business if they believe your customers can walk away the day after the acquisition closes.

Use your exit runway to transition these informal arrangements into formal, multi-year master service agreements. Start this process at least eighteen months before your target exit date. Frame the transition to your customers as a mutually beneficial upgrade that secures their pricing, guarantees resource allocation, and formalizes service level agreements in an uncertain economy.

Focus first on your top twenty percent of customers, who typically represent the majority of your revenue. Work with an experienced transactional attorney to draft contracts that include standard, favorable assignability clauses so the agreements transfer seamlessly to a buyer. By securing these multi-year commitments, you convert transactional revenue into contractual recurring revenue, which directly increases your enterprise value and eliminates a major buyer objection during due diligence.