Most are cheap to fix a year before you sell, and expensive to discover in the middle of a deal.
By the time a buyer is serious about your business, their lawyers are reading every contract you have ever signed. The customer agreements, the supplier terms, the employment contracts, the lease. Most owners have not looked at these documents since the day they signed them, and that is the problem, because every issue the buyer’s team turns up chips away at their confidence in the business, and that shows up in the deal terms: tighter warranties, more money held back at completion, or more of the price pushed into an earn-out you only see if the business performs after you have gone.
When we help owners get ready to sell, the same 6 problems come up again and again. None of them are exotic. All of them are cheaper, faster and easier to fix when there is no buyer in the room. Here they are, roughly in the order that matters most to a buyer.
1. The people who can walk out with the value
In a lot of sales, what the buyer is really paying for is the team and the relationships they hold. Then the buyer’s lawyers open the employment contracts and find no restraints, no confidentiality obligations, and nothing assigning to the company what those people create.
That last one catches owners out more than any other. There is a persistent myth that if you pay someone to make something for you, you own it. For an employee, that is usually right. For a contractor, it is usually wrong. Unless you have an agreement that assigns the intellectual property to your business, the contractor who built your software, your designs or your brand most likely still owns the underlying rights, and could walk off and use them with a competitor. If the thing the buyer is paying for was built that way, you may not fully own it. Fixing it mid-deal means going back to those individuals and asking them to sign, at the exact moment they have the most leverage to say no, or to name a price.
2. The lease that runs out before the buyer’s payback does
For a business tied to its premises, the lease is part of what is being sold, and a short one frightens a buyer.
We saw this with a business acquiring a dental practice. Their previous lawyer had charged a good sum to review and negotiate the lease assignment, but had never flagged that the options had run out and the lease had less than a year left to run. When the buyer went to organise finance, the bank blocked it, because the lease term was too short to support the value of the business being sold. Worse, the bank found a demolition clause buried in the lease, allowing it to be ended with three months’ notice. The reason turned out to be exactly what it sounds like: the building was going to be demolished. A lease problem nobody had looked at almost sank the whole deal.
A lease that is simply too short can also shrink the pool of people able to buy you at all.
3. The contracts and structures in the wrong name
The trading company signed some agreements. You signed others personally, years ago, before the current structure existed. A few are still in the name of an old entity that no longer trades. The way the business is owned today may also no longer be the way that gets you the best result on a sale.
Each of those has to be found, untangled and moved across before completion, at your cost and on the buyer’s timetable. We see owners arrive at a sale having “prepared” for years, only to discover at the table that the structure they sit in costs them dearly, and that by then it is too late to change cleanly. Approached early, almost all of this can be sorted easily. Left until a buyer is in the room, it becomes expensive, or it becomes a problem you simply have to live with.
4. The personal guarantees that follow you out the door
Over the years, you have probably signed personal guarantees without thinking much about them. They are a standard requirement of leases, of finance, sometimes of supplier accounts. The trap is that they do not automatically end when you sell.
If a guarantee is not properly extinguished as part of the sale, and the buyer later stops paying the rent or defaults on the finance, the other side can come after you personally, for a business you no longer own. You may have a right to chase the buyer under the sale contract, but that is a fight you should never have had to be in. Every personal guarantee needs to be found and dealt with before completion, and some take longer to release than others, which is exactly why you want to start early.
5. The revenue with no contract behind it
Plenty of good businesses run on long-standing arrangements that were never written down. The customer has been there 10 years, everyone is happy, nobody ever needed a document.
A buyer cannot pay for loyalty they cannot verify. Revenue with nothing behind it gets treated as revenue that might not survive the sale, so it is discounted, made conditional, or covered off with money held back until those customers prove they are staying. If a meaningful slice of your income is on a handshake, expect the buyer to treat it as though some of it will walk.
6. The contracts that need someone else’s permission
Many customer and supplier contracts, and almost every lease, carry a change of control clause. It lets the other side ask for their consent before the business changes hands. In the lead-up to a sale we pick these clauses up and get the consents as part of the process.
The one thing worth doing early is this. If a key contract has a change of control clause you would rather not have there at all, the time to take it out is at a renewal, when the whole contract is being negotiated anyway. Asking a customer to strike out only that one clause, on its own, can signal that you are thinking about selling.
What this actually costs you
What these problems really do is erode the buyer’s confidence in the business, and a less confident buyer protects themselves through the deal terms. That means tighter warranties and indemnities, more of the price held back in a retention, or a bigger slice pushed into an earn-out you only collect if the business performs after you have left.
The numbers add up quickly. If a buyer holds back 10% of a $2M sale against a risk their lawyers found, that is $200,000 of your money sitting in someone else’s account, sometimes for years, and released only if nothing goes wrong. Fixing the same problem a year earlier would usually have cost a small fraction of that.
A year out is the cheapest time to fix all of this
The expensive mistake is waiting until a buyer appears. Once due diligence starts, every fix happens under time pressure, with the other side watching, and the negotiating power sits with everyone except you.
If a sale is anywhere on your horizon, even 2 or 3 years out, a Ready to Exit Consultation looks at your business the way a buyer would, contracts included, and gives you a clear list of what to fix and in what order.
Just book in a free call with our legal team, and we will take you through how the process works. Every problem above is fixable cheaply, and on your own timetable, right up until the day a buyer’s lawyers find it first.
