Playing the Long Game
A recent conversation prompted me to revisit the topic of deal killers when negotiating client services agreements.
We obsess about short term deal killers—Will negotiating the contract tank the deal? We don’t obsess enough about the long-term downside of ignoring the details.
Those unnegotiated (or under negotiated) contracts can come back to haunt you when you are ready to sell your business.
Having executed services agreements with your clients provides revenue visibility. Check my post here. if you aren’t familiar with the term “revenue visibility”. I’ll briefly say, having revenue visibility is a very good thing and a requirement when selling your business.
But it is all for not if you haven’t taken the time to negotiate your contracts has terms like these:
Key Personnel (formerly known as Key Man) Clause. A “Key Personnel” clause is included in a services agreement when the participation of one or more specific employees is considered so important to the value that your business is providing to the client that the employee is an explicitly named deal term! Imagine how happy an acquirer would be to see a clause like the one below. The only thing worse -- yours truly being the Key Personnel. Hint: This is a symptom that your business is still selling experts (unleveraged time), instead of selling expertise (asset).
Restrictions on Assignment. Another problematic provision applies to your ability to transfer rights in your services agreements to an acquirer. Requiring approval to assign the agreement itself is fairly common. Your clients hire your company to provide professional services based on your stellar reputation. They want your company to deliver the services. That’s fair. The problem starts when approval is required for transfers that are made in connection with the sale of your business.
Needing to get prior consent from your clients in order to consummate a sale of your business is 💀.
Go ahead—take a peek (through your fingers if necessary🫣) at your services agreements. See anything you don’t like or, worse, don’t understand? Let’s talk.