Strong client, supplier and referral relationships can make a business attractive to a buyer, but during a sale the buyer will usually want to understand how secure those relationships really are. A seller may know that a particular client has been with the firm for fifteen years, but a buyer is likely to ask what actually keeps that relationship in place and whether it is likely to continue after ownership changes.
Start with your most important agreements.
- Which client relationships are formally documented?
- When do those agreements expire?
- Are there renewal provisions?
- Can they continue if the ownership of the business changes?
- Are there minimum commitments, exclusivity provisions or other obligations that could affect a purchaser?
These questions become particularly important when one agreement supports a significant amount of revenue. The same applies to supplier, licensing, aggregator, dealer group or platform arrangements that are important to the way the business operates.
Not every valuable relationship will have a lengthy written contract. This is common in professional services, where clients may have stayed with a firm for many years without being locked into a long-term agreement. In that situation, other evidence can help demonstrate the strength of the relationship. Client tenure, recurring work, retention rates, service history and the number of people within the firm who know the client can all provide useful context.
Referral relationships should also be considered. A business might have hundreds of clients but still receive a large proportion of new work from one accountant, adviser, broker or other professional partner. If that source disappeared after the sale, how difficult would it be to replace?
The same principle applies on the supplier side. If an important service, platform, licence or provider cannot easily be replaced, a buyer will want to understand the risk and whether the relationship can continue.
The best time to review these arrangements is before the business is on the market. That gives you time to locate agreements, understand what they contain, identify any gaps and obtain legal advice if something requires attention. Discovering an issue during due diligence, when a buyer is already negotiating, is far more difficult than identifying it early.
If you want to know more feel free to reach out. Contact us for personalised assistance and expert guidance.
Regards,
Tony Arena