In the post-COVID world, buyers are hyper-sensitive to supply chain risks. They aren’t just looking at what you sell, but how reliable your ability to produce it is.
The biggest red flag we see in this area is the “Personal Loyalty” Trap.
The Scenario
You buy raw materials from “Bob” at Acme Supply. Because you and Bob play golf together, he gives you a 15% discount and Net-60 payment terms.
- The Buyer’s Fear: “When I take over, Bob won’t know me. He will revoke the discount and demand payment on delivery. That wipes out 10% of the profit immediately.”
The Fix: Formalize and Transfer
To protect your valuation, you need to prove that your supply chain belongs to the entity, not the owner.
- The “Change of Control” Clause
Review your existing vendor contracts. Look for a clause regarding “Change of Control” or “Assignment.”
- Bad Language: “This contract terminates automatically upon the sale of the business.”
- Good Language: “This contract shall be binding upon successors and assigns.”
- Second Sourcing
If you rely on a single factory in China or a single distributor in Ohio, you have “Vendor Concentration.” If they burn down, you go out of business.
- The Strategy: Qualify a backup supplier now. Even if you only send them 5% of your volume, having an active account open proves to a buyer that you have a Plan B.
- Institutionalize the Relationship
Stop being the only person who talks to the vendors. Have your Operations Manager handle the weekly orders.
- Why? It proves the relationship can survive without your daily involvement.
A buyer is paying for a turnkey machine. If the machine stops working the day you walk out the door, it’s not worth the premium. Secure your supply chain on paper.