Can your contracts be a deal killer when you are selling your business?

Huge fan of contracts here. 🙋🏾‍♀️

Contracts provide the foundation for building a business that can scale. It is through contracts that you will own and control the intellectual property rights that flow in and out of your business. The client deliverables, the subcontractor's work product, and the licensed materials.

Ownership and control for all are governed by your contracts. Let me rephrase—by your written and executed contracts if you want to make sure that you own what you think you own.

In addition, having executed service agreements with your clients provides revenue visibility for your business. Check my post here if you aren’t familiar with the term “revenue visibility.” I’ll briefly say buyers love revenue visibility.

But there is a very dangerous term that can sneak into your client agreements when your business is still selling experts (i.e., time) instead of selling expertise (i.e., assets). This is a symptom that your business is still selling experts (time) instead of selling expertise (asset).

Key Personnel (formerly known as Key Man) Clause

A “Key Personnel” clause is included in a services agreement to require a specifically named person(s) to personally participate in the servicing of that client engagement. In other words, the Key Personnel is an explicitly named deal term!

A Key Personnel clause will make selling your business a terrible deal for you or a terrible deal for the buyer.

Either (i) you will be stuck becoming an employee of the buyer to make sure the revenue from that contract is realized, or (ii) the buyer will have to negotiate its way out of the provision, which will be costly for someone (probably you).

Go ahead—take a peek (through your fingers) at your contracts. See anything you don’t like?

Cheers! 🥂

Erin