How Can You Get Your Contracts in Order Before You Sell a Business?
What Should You Check Before Going to Market?
When you have run a business for years, you tend to know which customer relationships are strong, which suppliers you can rely on and which members of your team are central to keeping things moving.
A buyer does not have that history.
They will want evidence that the relationships, revenue and arrangements they are buying are likely to continue after ownership changes.
That is why contracts can become much more important when you sell a business than they may feel during day-to-day trading.
You may have worked with your biggest customer for 15 years and never needed a particularly detailed agreement. From your perspective, the relationship feels secure. From a buyer’s perspective, however, the question is different:
What protects that revenue after the current owner leaves?
Reviewing your contracts before going to market gives you the chance to answer questions like this before they become issues during due diligence.
Why Do Contracts Matter When Selling a Business?
Contracts help a buyer understand how secure and transferable the business really is.
They can provide evidence that customer revenue is likely to continue, suppliers are committed, employees are properly documented and key commercial arrangements will remain in place after completion.
They can also reveal areas of risk.
A customer may be able to terminate at short notice. A supplier arrangement may depend on favourable terms that are not guaranteed to continue. An important lease or licence may require consent if ownership changes.
None of these issues necessarily stops a sale.
The important thing is knowing they exist before the buyer finds them.
That is one reason contracts form an important part of the wider due diligence process.
How Do You Review Customer Contracts?
For many businesses, customer contracts will receive the greatest attention because they help a buyer understand how secure future revenue really is.
You may describe revenue as recurring, but a buyer will want to know what sits behind that. Is it contracted? How long do agreements run? How easily can customers leave? Do they renew regularly? Does the relationship depend heavily on you personally?
This becomes particularly important where one or two customers represent a significant proportion of turnover or profit.
A large customer can be a major strength, but if that customer could leave at short notice, a buyer is likely to look at the relationship much more closely.
Before going to market, make sure you understand:
- when key contracts expire or renew
- what notice and termination provisions apply
- whether pricing is fixed or regularly reviewed
- whether revenue is genuinely contracted or simply repeats regularly
- whether any customers account for a significant share of revenue
- whether any change-of-control provisions apply.
The earlier you identify a weakness, the more time you have to address it.
That might mean renewing an agreement, strengthening a relationship or gradually reducing dependency on one customer before a sale.
What’s Most Important When Checking Your Key Supplier Relationships?
Supplier contracts matter for a similar reason.
A buyer wants confidence that the business can continue operating after completion.
If you rely heavily on one specialist supplier, manufacturer, distributor or technology provider, they are likely to want to understand how secure that arrangement is.
Consider whether your important supplier relationships are formally documented, what notice periods apply and whether the terms could change following a sale.
Where the business is heavily dependent on one supplier, it can also be useful to demonstrate that you understand the risk and have considered credible alternatives.
The aim is not to remove every possible dependency.
It is to show that the business is well managed and that key commercial relationships are understood rather than taken for granted.
Why Must You Make Sure Employment Contracts Reflect the Business Today?
Employment contracts can easily fall behind the reality of the business.
Someone who joined several years ago in a junior role may now run a division. A senior employee may hold important customer relationships or technical knowledge that did not exist when their original contract was signed.
Before selling, check that the documentation around your key people reflects the roles they actually perform today.
Pay particular attention to senior management and employees who are important to the business after you leave.
A buyer is likely to want confidence that responsibilities, remuneration, notice periods, confidentiality provisions and other key terms are properly documented.
This links to one of the most important questions in any sale:
Can the business continue successfully without the current owner?
A strong management team can add significant confidence, but only if the arrangements around that team are clear.
What’s the Most Important Clause to Look Out For? Change-of-Control
This is an area that is easy to overlook.
Some contracts contain provisions that are triggered if ownership or control of the company changes.
Depending on the wording, you may need to notify the other party, obtain consent or deal with specific rights before the transaction can proceed.
These clauses can appear in customer contracts, supplier agreements, leases, finance documents and licence arrangements.
You do not want to discover late in the process that an important agreement could be affected by the sale.
Your legal adviser should review significant contracts and explain what any change-of-control or assignment provisions mean in practice.
What Other Contracts Should You Review Before a Sale?
The exact contracts that matter will vary from business to business, but the main areas usually include:
- customer contracts
- supplier agreements
- employment contracts
- property leases
- finance agreements
- software and technology licences
- intellectual property agreements
- distribution or agency agreements
- confidentiality agreements.
A useful question to ask is:
Which agreements would create a problem if they disappeared tomorrow?
Those are likely to be the agreements a buyer will also want to understand.
Our Legal Checklist: What You Need to Do Before Selling Your Business covers some of the wider legal areas worth reviewing as part of your preparation.
How Should You Prepare Your Contracts Before Due Diligence Starts?
One of the most frustrating things for an owner is seeing something that has never caused a problem in the day-to-day running of the business suddenly become important during due diligence.
A missing contract, an old agreement or an informal arrangement may have worked perfectly well for years.
But once a buyer starts reviewing the business, those gaps can create questions and slow the process down.
That is why it is worth getting your key contracts organised before you go to market.
Bring current agreements together in one place and make sure you know where signed copies, amendments and renewals are held.
This is not simply about making due diligence easier.
It also helps you identify issues while you still have time to deal with them.
You may be able to renew an agreement, update documentation, reduce a dependency or prepare a clear explanation before buyers begin asking questions.
Once you are already negotiating a deal, your options may be much more limited.
Why Does Early Preparation Matter?
Getting your contracts in order is just one part of preparing a business properly for sale.
The earlier you identify gaps, dependencies or terms that could concern a buyer, the more opportunity you have to deal with them before due diligence starts.
That preparation can make a real difference once the sale process begins.
Following the sale of Trends UK, the shareholders commented:
“Their guidance and professionalism were instrumental throughout the process, from preparing the business for sale to navigating negotiations with PAT Avenue. Their expertise allowed us to focus on what mattered most, and they ensured that every decision was made with our best interests in mind. ”
The same principle applies to your contracts. Reviewing them early gives you time to resolve issues while you still have options, rather than dealing with them once a buyer is already scrutinising the business.
Our Exit Readiness Assessment can also help you understand how prepared you and your business are for a future sale.
Do Good Contracts Help Give Buyers Confidence?
Getting your contracts in order is not about trying to make the business look perfect.
It is about reducing uncertainty.
A buyer wants confidence that the customers, suppliers, employees and commercial relationships they believe they are acquiring will still be there after completion.
Clear, current and well-organised contracts can help provide that reassurance.
More importantly, reviewing them early gives you time to deal with any weaknesses before they become part of a negotiation.
If you are considering selling your business over the next few years, we can help you understand how prepared the business is today and where it may be worth taking action before you go to market.
Speak to Entrepreneurs Hub about preparing your business for sale.
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FAQs – Contracts
What contracts do I need when selling a business?
Buyers will usually review important customer and supplier agreements, employment contracts, property leases, finance arrangements, intellectual property agreements and other contracts the business relies on.
The exact requirements depend on your business and sector, but organising key agreements before due diligence can help identify gaps and reduce avoidable delays.
For a wider view of the legal documentation worth preparing, see our Legal Checklist: What You Need to Do Before Selling Your Business.
Why do buyers review contracts during due diligence?
Buyers review contracts to understand the security of revenue, supplier relationships, employee arrangements and other commercial commitments.
They will also look for termination rights, liabilities and clauses that could be triggered by a sale. The findings help the buyer assess risk and may sometimes influence the terms of the deal.
For more on the wider information buyers are likely to investigate, read our Business Sale Due Diligence Checklist.
What is a change-of-control clause?
A change-of-control clause is a contractual provision that may be triggered when ownership or control of a company changes.
Depending on the agreement, it may require consent or notification, or give the other party certain rights. Important agreements should therefore be reviewed before a sale so any potential issues can be identified early.
Can missing customer contracts affect the sale of my business?
Yes. Missing or poorly documented customer agreements can create uncertainty, particularly where significant revenue depends on those relationships.
A buyer may want evidence of contract duration, renewal history, termination rights and how likely the relationship is to continue after the current owner leaves.
Where important revenue is described as recurring, buyers may also want to understand how sustainable those earnings really are. Our Quality of Earnings Report guide explains this in more detail.
Should I renew customer contracts before selling my business?
Renewing an important customer contract before a sale may strengthen revenue visibility, particularly where an agreement is close to expiry.
Whether it makes commercial sense will depend on the individual relationship and contract terms. The aim should be to strengthen genuine customer relationships rather than changing agreements purely to make the business appear more attractive.
When should I review my contracts before selling?
Ideally, review important contracts well before you intend to go to market.
Starting early gives you time to identify missing documentation, renew key agreements, address dependencies and understand any change-of-control provisions before buyer due diligence begins.
You can also use our Exit Readiness Assessment to identify other areas of the business that may benefit from attention before a future sale.
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