Picture someone sitting down with your business for the first time — not a customer or an employee, but a buyer’s attorney, a lender’s underwriter, an estate attorney helping settle a co-owner’s affairs, or opposing counsel in a dispute. They don’t know the history. They don’t know that the vendor agreement everyone forgot about was actually renegotiated informally two years ago, or that the “loan” from an owner to the company was really meant as an investment. They just have the file in front of them, and they’re going to draw conclusions from what’s actually there.
That’s a useful exercise to run occasionally, even when no transaction or dispute is on the horizon.
What tends to turn up
A few things I see repeatedly when someone outside the business takes a first look: agreements that were clearly negotiated — pricing, terms, exclusivity — but were never actually signed. Ownership records that don’t match each other: the cap table says one thing, the tax returns say another, and nobody can say with confidence which one is right. Contracts that require a counterparty’s consent to assign, discovered only once a sale is already in motion. Loans between an owner and the company that were never documented with terms, so nobody can say whether it was debt, a gift, or an investment. Intellectual property — a name, a process, a piece of software — that was developed before formation or by someone other than the company, with no assignment on file. And, often, records scattered across email threads, a filing cabinet, and someone’s memory, with no single place that reflects the company’s material obligations.
I’ve written elsewhere about personal guarantees that outlive the deal they were tied to, contractor relationships that don’t hold up under a closer look, and restrictive covenants that mean something different than most owners assume — all exactly the kind of thing an outsider’s review tends to surface, and I won’t re-cover the specifics here. If your business has hired from a competitor recently or leans on independent contractors, those are worth a read.
This is also a different question than the one I answered in a piece on getting ready for financing — that article was specifically about presenting well to a lender. This is broader. A buyer looks for different things than a lender. A successor looks for different things than either. Someone on the other side of a dispute is looking for something else entirely. The point isn’t to prepare for one specific audience — it’s to understand what your business actually looks like from outside your own head.
This isn’t a verdict on how you’ve run things
None of this means a business with these issues is badly managed. It almost always means the opposite — the owner has been spending their time on customers, employees, and revenue, which is exactly where their attention should go most days. Nobody builds a successful business by spending their time reconciling old loan documents. The gap between running a business well and having a business that would hold up under an outsider’s examination is completely normal. It’s just worth knowing how wide that gap is, and closing it on your own terms.
Why the timing matters
The real advantage of finding these things yourself isn’t that you’ll fix every one of them immediately. Some won’t need to be fixed at all. The advantage is leverage. An issue you found on a random Tuesday is a project. The same issue, discovered by a buyer’s counsel three weeks before closing, is a negotiating point against you — or worse, a reason the deal slows down or falls apart. A dispute where the other side finds the gap first is a very different conversation than one where you already know it’s there and have a plan.
That’s a large part of what the Business Health Check-Up I’m formally introducing next week is built to do: give you that outsider’s view before a transaction, a dispute, or someone else’s timetable forces the issue.
Next week: what the Business Health Check-Up actually is, what it covers, and how to get one started.
Mike Lang is a transactional lawyer who writes weekly for founders and family business owners navigating the deals that define their companies. Questions or topics you want covered? Email Mike.