Over the years, you've developed good relationships with your suppliers, licensees, landlords, and of course, customers. In addition to your financial records, a potential buyer will want to examine the state of your contractual relationships with these key third parties.

The first fundamental question is 'are the contracts up to date?' It's not uncommon for a business relationship to carry on even when the contract between the parties has lapsed. This is often the case when there is a strong working relationship and level of trust between the parties, which for obvious reasons will not necessarily apply when a new owner takes over. Lapsed contracts will be an instant red flag to a potential purchaser
who may fear that a change in ownership will mean a change in terms. The same advice applies to key customers. If any of your contracts with key accounts have expired, you must re-sign them before hanging out the for sale sign.

The second important consideration is the assignability of your contracts. It is very common for joint-venture agreements, licenses, leases and other material contracts with customers and suppliers to contain clauses preventing assignment to a third party without the express written consent of the other party to the contract. This may be true even in a share transaction, as a change in control in the Seller will be deemed
to be an assignment for the purposes of the contract in question. You should identify contracts with restrictions like these and take steps early on to ensure that you won't have any hesitant third parties. A reluctant supplier or customer could jeopardize the sale from being completed in a timely manner, or worse, stop it entirely because of some unwarranted demand in exchange for their consent.

If a contract has expired, a business owner in the midst of negotiations to sell may be required to back peddle in order to get a new contract signed and agreed upon in a timely manner. But what happens if the other side is not in a hurry or uses the urgency of the business owner as a negotiating tool? Playing catch-up is never a comfortable feeling for a business owner who is trying to sell. It is a prudent business practice to maintain and regularly review a detailed list of all material business contracts and their terms to ensure they will not impede your ability to successfully conclude your exit strategy on your terms.