In many owner-run businesses, the largest customers are the owner's customers. They have dealt with the owner for years and ring the owner's mobile when something goes wrong. Some of their invoices still carry the owner's name, and the agreement that governs the relationship is a handshake the owner remembers and the customer trusts. The relationship is valuable and real. A buyer who will not run the business looks at it and sees revenue that belongs to the person selling, and prices it as revenue that may leave with them.
Relationship Transfer moves the revenue and supply relationships from the owner to the company, so that the earnings the business reports belong to the company. Every material customer and supplier gets an assignable contract with the company, a named lead becomes the person they call, and the owner is introduced to them as the owner of the business instead of as the account. Along the way, every clause that a change of ownership could trigger is found and dealt with.
Where Relationship Transfer sits
Three drivers turn the pro forma into earnings the business reports with nobody indispensable. This essay covers the third.
Pro forma EBITDA
- Management InstallFills every owner seat at the benchmarked cost, so the replacement becomes a payroll line
- Absence TestProves the number is earned without the owner, through a planned absence with the figures recorded
- Relationship TransferThis essayMoves customer and supplier relationships from the owner to the company
Reported EBITDA
Contracts in the company's name
Every material customer and every material supplier, meaning each above a meaningful share of revenue or of the cost of goods, should be under a written contract with the company, not with the owner personally, and the contract should be assignable.
The list of who counts as material comes from the books. Revenue by customer and cost of goods by supplier for the latest year are taken from the reviewed statements, and a threshold line is drawn. Every account above it is papered, at its next renewal or sooner, on one customer template and one supplier template drafted by counsel: in the company's name, assignable, with a named company contact. An account that refuses to sign goes on the customer schedule anyway. A buyer will find it, and will trust the rest of the schedule less if it was left off.
A contract with the company is an obligation of the company, and a buyer acquires it with the business. A handshake with the owner is an obligation of the owner, which the buyer does not acquire, and which it therefore cannot count on lasting past the sale.
A new working contact
Every material account should have a lead other than the owner as its primary contact, and the contact records should show that the owner has been out of day-to-day contact with it for long enough that the lead has handled a few problems alone.
The transfer is made in person. In a joint visit or call, the owner tells the customer that the lead now runs the account, and then the owner does not take the next call. Whether the transfer holds is decided by that next call. A customer who rings the owner about a problem and gets the owner learns that the lead is a formality. A customer who rings the owner and is passed to the lead the same day, with the owner saying so, learns that the lead runs the account.
The lead's details then go on the invoices, orders and correspondence, and calls and messages to the owner about an account are passed to the lead on the day they arrive. The record has to run for some months because a relationship has to survive a few problems handled by the lead before anyone, the customer included, believes it has moved.
Whose relationship is this?
Illustrative. A buyer prices a customer or supplier relationship as leaving with the seller unless the evidence says it belongs to the company. Guess, then select each to see why.
Select each item to see the verdict.
No contract and a personal line to the owner: every sign that the relationship is with the person, not the business.
The obligation runs to the company, survives a change of ownership, and the customer already deals with someone else.
The customer's own records say they buy from the owner.
The contact record shows the relationship has already moved, and survived the move.
The customer can refuse the sale's effect on the contract. Until the consent path is documented, a buyer treats the account as at risk.
Assignable, in the company's name, and with nothing in it that a sale could trigger.
Clauses a sale could trigger
Every contract with a change-of-control or non-assignment clause should either be renegotiated or have a documented path to consent, with the counterparty's contact and the expected timing.
Such clauses are common in larger commercial contracts and easy to overlook in a small business that signed what its customers sent. A change-of-control clause lets the other party end the contract, or requires its consent, if the business changes hands. A buyer's lawyers will find every one of them in legal diligence, and each becomes a question about whether that customer's revenue will survive the sale. Counsel reviews every material contract for assignment and change-of-control terms and records a one-line finding per contract on the customer and supplier schedule. Where the counterparty agrees, the clause is removed at renewal. Where it does not, the schedule records who consents, how, and how long it takes.
A buyer who knows before making an offer which consents the sale will need can plan for them. A buyer who discovers them in diligence has had no chance to plan, and prices each one as a risk.
Suppliers
Most of the attention in a transfer goes to customers, and suppliers are easy to forget. A business that buys a critical input from one supplier on credit terms the owner negotiated personally, or that holds a distribution agreement granted to the owner and not to the company, can lose its supply when the owner leaves as surely as it can lose its customers. The same threshold applies: every supplier above a meaningful share of the cost of goods is under an assignable company contract, with a named contact who is not the owner and with any clause a sale could trigger reviewed.
Customers who will deal only with the owner
Some customers will not move. They have bought from the owner for years, they value the relationship for its own sake, and no lead will satisfy them. Such an account is recorded on the customer schedule as owner-dependent, with its share of revenue, and the business decides openly what to do about it.
The options are limited. The customer can be put under a longer contract in the company's name, so that the revenue is secured for a period even if the relationship is not. The business can rely less on the account by growing elsewhere until its share no longer matters much. Or the seller can plan to stay on for a time after the sale, introducing the buyer and handing the relationship over in person. That last option is common in sales of owner-run businesses, and it has a cost: the seller's time after closing, and often a part of the price that depends on the customer staying. If the seller discloses the account early, the seller gets to choose among these options. If the account is hidden, the buyer chooses, at the moment the seller can least afford to argue.
What it does to value
Relationship Transfer is the highest-ranked driver on this bridge because of the ratio of its exposure to its cost. Losing material accounts with the seller is one of the two largest risks a buyer at this anchor prices, and the work that reduces it consists mostly of contracts, introductions and a change of phone number.
Why moving relationships ranks first
Illustrative. Revenue from accounts the owner manages personally can leave with the owner. The framework values the work of moving those accounts to the company as the fall in the probability that they leave, times the after-tax margin on their revenue, capitalized at the cost of capital. Contracts and a change of contact are cheap; the exposure is large. If the second chance is set above the first, the transfer adds nothing.
The framework values it as the fall in the probability that those accounts leave, multiplied by the after-tax margin on their revenue, capitalized at the cost of capital, plus the risk removed at each change-of-control clause. Separately, as price, it records the part of the price a buyer would otherwise hold back or place in escrow against accounts without a company contract, which the transfer releases.
What has to be in place first
The threshold is drawn from revenue by customer and cost of goods by supplier in the reviewed statements under Books, so that it rests on closed accounts. A lead has to be in the sales or delivery seat already, from Management Install, because a relationship can only be transferred to someone who is there to receive it. Counsel and a budget for the templates and the contract review are agreed before the account list is finished.
Knowing that it works
Four counts show progress: the material accounts under a company contract; the material accounts with a primary contact other than the owner, with the date each transfer was made; the account contacts the owner still handles each week, which should fall toward zero and stay there; and the change-of-control clauses found, renegotiated and given a documented consent path.
The owner can test the work directly by asking three of the largest customers whom they call now. The answer should be the lead's name. If it is the owner's, the transfer has not happened, whatever the contact records say. The owner should also be able to go down the change-of-control list and say, for each contract, whether it was renegotiated or has a consent path, before an inspector asks.
Why it slips, and what holds it
The decay this driver guards against is a material account drifting back to the owner's phone. It tends to start with a good intention: the customer has a problem, the lead is busy, the owner takes the call to help, and the customer learns that the owner is still reachable.
The owner's direct contact details appear on no customer-facing material, so the account cannot drift to a number it does not have. And a quarterly account review lists the primary contact for every material account and any contact the owner had with it in the quarter, so a drift is seen within the quarter it starts, while it can still be reversed.