Recurring revenue may be king when it comes to driving the value of IT services companies—but the quality of the contracts behind that revenue? That’s what truly protects your throne.

If you want to maximize value and avoid potholes during a sale, pay close attention to these five critical contract attributes. We’ve seen them make or break deals time and time again.

1. Duration

Duration informs both parties how long service is expected to continue without interruption. The best agreements run one to three years. A longer term—especially with an auto-renew clause and built-in pricing flexibility—can boost buyer confidence and lead to stronger offers.

Short durations, on the other hand, increase risk to the buyer and can chip away at your company’s value.

2. Assignment and Change of Control

Whether through an asset or stock sale, it’s critical to know whether your contracts can be assigned without customer consent. Lack of clarity—or restrictions here—can raise red flags.

The more flexibility, the better. Review your contracts now to avoid unpleasant surprises later.

3. Termination

Most contracts include termination clauses for both parties—but if the language is vague or lets the customer cancel with little notice or obligation, it can seriously weaken the perceived strength of your agreement.

A buyer may view an easy-out clause as the same as a handshake deal. The tighter your termination terms, the stronger your standing.

4. Governing Law and Jurisdiction

These clauses become critical when there’s a dispute or missed payment. Knowing where and how legal action or mediation can occur can save time, stress, and legal fees.

It’s a simple clause that adds real-world protection—and buyers notice when it’s missing.

5. Execution

It should go without saying, but a contract isn’t enforceable unless it’s fully executed. That means both parties have signed, and the agreement is up to date.

Outdated or unsigned contracts are red flags. They can be easily terminated—or deemed unenforceable—putting your revenue (and your valuation) at risk. You get the picture: Tighten up your contracts now to protect your income and boost your value. We call this “Cleaning House.”

Want to know how your business stacks up? A Cogent Enterprise Valuation can help you assess where you’re strong, where there’s room to improve, and what it could mean for your future exit.