Putting your agreements in writing before you sell

Client and supplier contracts are the proof that your revenue and your costs will survive your departure. In many small businesses, the most important agreements rest on a handshake and on your personal relationship. Putting them in writing before the sale turns what a buyer sees as a risk into an asset they can verify.

Why a handshake doesn't sell

You've done business with some clients for 15 or 20 years. You know their kids, they know your prices, nobody has ever needed a contract. That trust has real value. The problem is that it's in your name, not the company's.

When a buyer looks at your business, they want to know how much of your revenue is secure. A client bound by a written contract, with a term, prices and renewal conditions, is revenue they can count on. A client who buys "because they know the boss" is revenue that can leave with you. It's one of the dependencies that lower a small business's value.

The same goes for suppliers. If a single-source supplier gives you favorable prices or terms out of friendship, nothing guarantees they'll do the same for the new owner. The buyer knows it, and will adjust the price accordingly.

What the buyer looks for in your contracts

During due diligence, the buyer's lawyer will read your main contracts with four questions in mind:

• Is there anything in writing? Even a short signed document beats an email, which beats a memory.
• What's the term? A contract that can be ended overnight protects less than a multi-year contract with notice.
• Does it survive the sale? That's the change-of-control or assignment question: can the other party walk away or renegotiate if the owner changes?
• Are the terms normal? Off-market prices or discounts granted out of friendship will be looked at closely.

Every contract that answers these questions well strengthens the normalized EBITDA the buyer will accept, because the revenue and costs it covers are credible.

Share sale or asset sale: not the same risk

The third question depends on how the sale is done. If the buyer purchases the shares of your company, the same company is still bound by the contract: only the shareholder changes. The risk then is a change-of-control clause. If the buyer purchases the assets instead, each contract has to be assigned to them, and some can only be assigned with the other party's consent. The form of the sale is decided later, often for tax reasons. Ask your lawyer to read your major contracts from both angles.

Four clients, no contracts: a case in Saint-Jean-sur-Richelieu

The company is invented; the situation is common. A corrugated packaging maker in Saint-Jean-sur-Richelieu: nine million dollars in sales, 45 employees, and a 60-year-old owner who wants to sell in three years.

Going through it with his lawyer, he finds that his four largest clients, who together make up half of sales, have no contract. Prices are set by email exchanges, year after year. His main cardboard supplier gives him generous payment terms, on a verbal agreement with an executive he's known since CEGEP.

He takes 18 months to fix it, without ever mentioning a sale. With each large client, his sales director proposes a three-year master agreement: expected volumes, annual price review, six months' notice. Three clients sign, happy to finally have clear terms. The fourth prefers to stay without a contract; at least the owner knows, and can explain it to the buyer. With the supplier, the payment terms are confirmed in writing, on slightly less generous terms but signed by the company, not by a friendship.

On the day of the sale, the data room holds signed agreements and, importantly, the sales director is the one who negotiated them. The buyer sees revenue attached to the business, not to its founder.

How to do it without upsetting anyone

Putting a long-standing relationship in writing can feel awkward. A few principles help:

1. Present it as good practice. "We're updating our agreements with our main partners" is a normal sentence that says nothing about a sale.
2. Let the team carry it. If your sales director or purchasing lead does the negotiating, you get two things at once: the agreement is written, and the relationship moves to someone else. That's the subject of handing client relationships to your team.
3. Offer something in return. Price stability, delivery priority, notice: a contract has to work for both sides.
4. Start with the easy ones. The first signed contracts give you a template and confidence for the rest.
5. Don't create the risk you're trying to remove. If a client asks for the right to walk away if the business is sold, you've just put in writing exactly what worries a buyer. Often, a shorter agreement without that clause is worth more than a longer one with it.
6. Have your lawyer draft or review. Especially the clauses on term, termination, assignment and change of control.

The other agreements not to forget

Clients and suppliers aren't the only relationships that sometimes rest on someone's word. While you're at it, check:

• The lease: is it in force, in whose name, for how long, and can it be assigned to a buyer? An expired or too-short lease worries a bank as much as a buyer.
• Licenses and subscriptions: software, domain names, online accounts. They should be in the company's name, not yours.
• Regular subcontractors: if part of the work depends on them, their terms should be in writing.
• Promises to key employees: a bonus, a share, a title promised verbally. Better to clarify them in writing now than to see them surface during the negotiation.

Every agreement put in order is one more document in your data room, and one less question for the buyer.

Your template: what an agreement should cover

For each major client or supplier, make sure the written agreement covers at least:

• The parties: the company itself, not you personally.
• The subject: the products or services, and expected volumes if any.
• Pricing: the price grid or method, and how it's reviewed.
• Term and renewal: start date, end date, automatic renewal or not.
• Termination: who can end it, with what notice.
• Assignment or change of control: what happens if the business is sold.
• Payment and delivery terms.
• Signatures: by an authorized person at the company, ideally someone other than you.

This week, fill in this table for your ten largest clients and your five most important suppliers. An hour is enough, with your sales and purchasing reports in front of you:

Client or supplier	Share of sales or purchases	Signed agreement?	Expiry	Assignment or change of control	Who owns the relationship

The empty cells are your work plan. Any row where the last column says "me" is the first to hand to someone else.

This work is part of step 7: the data room.

Do it with a pro

Alone, this work gets put off year after year, because no client has ever asked for a contract. With us and our regional partner, the priority agreements are identified, prepared with your lawyer and negotiated by your team, which also reduces the business's dependence on you.

Sell my business in Quebec