The Fix: Put Your Exceptions in a Register, Not in Someone’s Memory
Every business has deviations—special discounts, side letters, non-standard terms. If you don't list them, you are hiding them. We centralize chaos into a register.
Surprise is the Enemy of Value
You believe that your “standard terms” protect you. You assume the investor will read the template contract and assume it applies to everyone.
But you know the truth. You know that Client A got a “Most Favored Nation” clause. You know that Client B has a perpetual license. You know that your co-founder’s cousin gets the software for free.
These are Side Letters. In the eyes of an auditor, a side letter that is not disclosed is a Off-Balance-Sheet Liability.
The Red Flag: The Late Discovery
The worst time to discuss a “special deal” is after the legal team has flagged it during their 100% contract review.
- Auditor: “Why does this contract grant the customer ownership of the custom code?”
- Founder: “Oh, that was a one-off from 2021.”
The moment you say “one-off,” I stop believing in your recurring revenue. I now have to verify if every contract transfers IP ownership. You have turned a minor concession into a systemic risk inquiry.
The Protocol: The Exceptions Register
We do not let the auditor discover exceptions. We serve them on a platter.
Create a simple spreadsheet: 02_Legal / 02.00_Material_Exceptions_Register.xlsx.
Columns:
- Counterparty: (e.g., Acme Corp)
- Document: (e.g., MSA dated 2023-01-01)
- The Exception: (e.g., “Extended payment terms: Net 90”)
- The Reason: (e.g., “Pilot program incentive”)
- Impact: (e.g., “Cash flow delay, no revenue impact”)
The Strategy: By listing the exceptions, you are effectively saying: “We know our standard terms. We deviated here, here, and here. Everything else is standard.”
This allows the legal team to verify the list rather than hunt for the needle.
Exceptions Register — illustrative entry
The example below uses the payment-term exception described above. “Review needed” is a status to resolve, not a completed risk rating.
| Customer | Clause | Deviation | Risk level |
|---|---|---|---|
| Acme Corp | Payment terms | Net 90 | Review needed |
Attach the supporting details to the same entry:
| Record field | Example detail |
|---|---|
| Document | MSA dated 2023-01-01 |
| Reason | Pilot program incentive |
| Impact to assess | Timing of cash collection and any other consequences |
Assign the risk level after checking the actual agreement and impact. The register points the reviewer to the exception; it does not assess it automatically.
The “Clean” Narrative
When you present an Exceptions Register, you frame the deviations as Business Decisions, not Process Failures.
- Process Failure: “We let the sales rep sign whatever.”
- Business Decision: “We granted Net 90 to secure a logo.”
The former lowers valuation. The latter is defensible strategy.
FAQs
Does listing exceptions make us look disorganized?
No. It makes you look self-aware. Every company has exceptions. Only the bad ones hide them.
What counts as an exception?
Anything that deviates from your standard template. Extended payment terms, MFN clauses, custom IP rights.
Can we just upload the contracts and let them find the differences?
That is called 'burial.' If they find it, they will punish you for it. If you point it out, they will price it in.