08 Nov Your Buyer Will Read Your Contracts. Have You?
You have contracts with your biggest customers, your key vendors, and your most important employees. They’re in a shared drive or a filing cabinet somewhere. You signed them years ago, and the relationships have worked fine since.
Then a buyer’s diligence team pulls every one of those agreements out and reads them cover to cover. The question isn’t whether you have contracts. It’s whether you know what’s in them, and how those terms affect the company’s value after closing.
What Diligence Does With Your Contracts
A buyer’s legal team will request copies of every material agreement: customer contracts, vendor and supplier agreements, leases, employment agreements, non-competes, and IP assignments. They won’t just confirm the contracts exist. They’ll read every clause and calculate what each one means for the business after closing.
Anything that limits the buyer’s ability to operate the business the way they planned, or that creates a risk of losing revenue, customers, or key people after closing, gets priced into the deal. That shows up as a lower purchase price, a larger escrow, or an earnout.
An owner who knows those terms before going to market can renegotiate, update, or work around them. An owner who discovers them during diligence is reacting to the buyer’s findings instead of controlling the story.
Customer and Vendor Agreements
A customer contract signed five years ago may contain terms that made sense then but create problems in a sale. Assignment clauses that require customer consent before the contract transfers to a new owner. Change-of-control provisions that let the customer walk. Pricing locked in below what the market would bear today. Exclusivity provisions that limit who else the company can sell to.
Vendor contracts carry the same risk. An agreement signed eight years ago that renews annually may contain terms no one has reviewed since the original signing. Exclusivity clauses, non-compete restrictions, assignment provisions that block a change of control, and pricing terms that no longer reflect the market can all surface during diligence. The buyer’s team reads every page. If the seller hasn’t read them recently, that’s when surprises happen.
The Employee Agreement Gap
Buyers don’t just acquire assets and customer relationships. They acquire the team. And one of the first things a buyer’s lawyer will ask for is copies of employment agreements, non-compete agreements, non-solicitation agreements, confidentiality agreements, and intellectual property assignment agreements for every key employee.
Many privately held companies don’t have these in place. The sales director who built the company’s biggest accounts works on a handshake. The engineer who designed the core product never signed an IP assignment. The operations manager who runs the day-to-day could leave after closing and take institutional knowledge with them.
Buyers treat this as a closing condition, not a nice-to-have. Getting restrictive covenants signed after a deal is announced is harder and more expensive than doing it before anyone knows the company is for sale.
The enforceability of these agreements varies significantly by state. The federal government considered a broad ban on non-compete agreements but withdrew the rule, and the area is now governed entirely by state law. Some states enforce non-competes with reasonable scope and duration. Others have restricted or effectively banned them. What’s enforceable depends on where the employee works, not just where the company is headquartered.
What a Buyer Wants to See
The goal isn’t a perfect file. It’s knowing what’s in the file you already have. That means reviewing every material customer and vendor agreement for assignment clauses, change-of-control provisions, pricing terms, and anything else that could slow down or reprice a deal. For key employees who don’t have agreements in place, it means getting them signed before anyone knows the company is for sale.
None of this has to be done all at once. But a seller who reviews and updates their agreements at least 12 to 18 months before going to market walks into diligence without surprises. A seller who waits learns what’s in their own contracts at the same time the buyer does.
Do you know what your contracts say?
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For business owners: If you’re two to five years from a sale, the time to look at this is now. Garza Business & Estate Law works with a limited number of owners preparing for exit each year. If what you’ve read here raised questions about your own situation, you can apply here: