A customer contract review checklist for a Canadian business purchase covers assignability, auto-renewal and change-of-control terms, revenue concentration and pricing lock-ins across the customer book — the specific contract terms that determine whether the revenue a buyer is paying for actually keeps flowing to the business under new ownership.
Reviewed
A business’s customer contracts are often worth more scrutiny than its financial statements, because a financial statement shows what revenue looked like in the past and a contract shows whether that revenue is actually protected going forward. This checklist covers what to look for in the customer contract book specifically, as a deeper pass than the general commercial-risk review in Deavo’s buyer due diligence checklist.
Check whether each contract actually transfers
Read the assignment clause in every material customer contract and confirm whether the deal structure requires the customer’s consent to continueAn anti-assignment clause that requires customer consent on an asset purchase can let a customer walk away entirely at exactly the moment a buyer is counting on that revenue continuing.
Confirm whether any contract includes a change-of-control clause that a customer could invoke on a share purchaseA change-of-control clause lets a customer exit specifically because ownership changed, even where the operations and service otherwise continue exactly as before, and it is easy to miss because a share sale does not technically assign the contract at all.
Where consent to assign is required, start those conversations with key customers before closing, not afterA customer asked to consent after the fact, with no warning, tends to use the moment as leverage to renegotiate pricing rather than simply signing off.
Understand the revenue concentration and its terms
Calculate what share of revenue sits in the largest few contracts, and separately, what share of revenue has no written contract behind it at allRevenue with no contract behind it is really just a habit of buying, not a commitment, and a buyer should price that difference into the deal rather than treating both kinds of revenue the same.
Review pricing terms for any lock-in that limits price increases, and check the remaining term against how long that lock-in runsA long-term contract signed at a rate that no longer reflects rising costs can quietly erode margin for years, and a buyer wants that visible before closing, not discovered a year into ownership.
Confirm whether any contract carries minimum purchase commitments, volume rebates or penalty clauses for early terminationA minimum-volume contract that looks like guaranteed revenue on paper can also carry a penalty if the customer’s own business shrinks and it cannot meet the minimum, shifting risk back onto the seller of the business, not the customer.
Check auto-renewal terms and service obligations
Confirm which contracts auto-renew, on what notice period, and whether any are close to a renewal or non-renewal deadlineA contract sitting inside its notice window to decline renewal is effectively a decision the current owner is making right now, whether or not anyone involved in the sale has noticed.
Review any service-level commitments or penalty clauses tied to performance, and confirm the business has actually been meeting themA contract with service-level penalties the business has been quietly missing is a liability that does not show up in a revenue figure, and it becomes the new owner’s problem the moment they take over delivery.
Ask whether any customer has an exclusivity or most-favoured-customer clause that restricts how the business can serve or price other customersAn exclusivity clause given to one large customer can limit growth with everyone else, and a buyer evaluating expansion plans needs to know about that restriction before, not after, making an offer.
Deavo is an advertising and listings platform, not a brokerage, law firm or valuation firm. This page is general information, not legal, tax, accounting or valuation advice, and rules differ by province. Confirm anything you rely on with a qualified professional before you act on it.