The Skeletons in Your Business Closet

THE HOUSE OF UNFINISHED BUSINESS  |  PART 2 OF 4

Brianna Johnson | 3 min read

Every house has a closet nobody opens. The door sticks, the shelves are stacked with boxes from years ago, and you know roughly what’s in there. Roughly.

Last week, we toured the front office of the House of Unfinished Business and looked at the problems owners learn to live with. This week, we’re opening the closet: the missing paperwork, the handshake deals, and the old issues that stay quiet right up until a buyer starts asking questions.

What’s Behind the Door | Most business closets hold some version of the same four skeletons.

The contract that was never signed. Your biggest customer has ordered from you for twelve years, but the agreement expired in 2019 or never existed at all. A key supplier works on terms nobody wrote down. The building lease can’t be transferred to a new owner without the landlord’s approval.

The handshake deal. A bonus promised to a salesperson, a future ownership stake mentioned to a key employee, a standing discount for a loyal customer. These agreements were made in good faith, and they live only in someone’s memory.

The records that don’t match. The customer list in your system disagrees with the invoices. Inventory counts drift. Workers are paid as contractors when they function like employees. A license or permit lapsed and nobody noticed.

The liability nobody has dealt with. A customer dispute that went quiet but never closed, an open warranty claim, or sales tax that may be owed in a state where you’ve grown. These are the issues owners hope will simply go away.

Why Buyers Always Open the Closet

When a buyer gets serious, due diligence begins. That is the buyer’s detailed review of your company before a sale closes. Their accountants and attorneys will ask for customer and supplier contracts, leases, employment agreements, permits, and tax filings. Anything missing becomes a question, and anything unexpected becomes a negotiation.

The timing makes it worse. These discoveries usually come late in the process, after the buyer has already spent time and money on the deal. A surprise at that stage lowers their confidence in everything else you’ve told them. It can lead to a lower price, more money held in escrow (funds set aside after closing to cover problems that surface later), broader indemnification (your promise to repay the buyer for certain issues after the sale), or a deal that falls apart.

A known problem with a plan to fix it is usually manageable. What costs you is the surprise.

Cleaning Out the Closet

You don’t have to fix everything at once. Start by finding out what’s in there:

✔️ If a buyer asked for every customer and supplier contract tomorrow, could I find them all?

✔️ Have I made promises to employees, partners, or customers that exist only in someone’s memory?

✔️ Do my records tell the same story everywhere?

✔️ Is there a dispute, claim, or tax question I’ve been hoping will go away?

From there, gather your key contracts in one place and check whether they can transfer to a new owner. Put handshake agreements in writing while everyone still remembers them the same way. Ask your CPA and attorney to look at any open liabilities so you can resolve them or at least document where they stand.

A Cleaner House Is a Stronger One

This work pays off long before a sale. A signed contract protects you in a customer dispute. A documented agreement keeps a key employee relationship from turning into a misunderstanding. Clean records make it easier to borrow, plan, and make decisions with confidence.

Next week, we’ll see what happens to the house when the owner’s chair sits empty. In the meantime, if you’d like help figuring out what a buyer might find in your closet, the Capstone team is always glad to talk.