Saturday, April 17, 2010

Staying on After the Sale

Selling a business and walking away can be very difficult and very rare in this marketplace. Oftentimes, there is a transition (“training” and/or “consulting”) period dependent on the size of the company and the role of the owner. Transitions may be as short as a month or two or as long as several years. Given the instability of the markets right now, buyers are very interested in retaining the seller to shorten the learning curve and help with the smooth transfer of key relationships.

In the typical business sale, a transition period of two to three months is included, and sometimes a “telephone consulting period” is added (e.g., 6 months of telephone consulting not to exceed 5 hours per month). Also, the seller may additionally be retained as a consultant at a negotiated rate. In some instances, a long-term employment contract is negotiated and the seller maintains daily involvement for a much longer period of time.

For the owner who wants to sell the company and leave quickly, which is fairly uncommon these days, the focus should be on the development of a strong management team. Be sure to introduce key employees/managers to your major customers and vendors and look at ways to delegate responsibilities. The more the customers think they are interacting with “the company” versus the “owner” the easier the transition. If you have established a good management team, less time will be required for the transition to the new owner. In addition, a well developed team usually adds value to the sale.

Occasionally there are owners who want to sell but just are not ready to quit working. They may be looking to sell early and slowly transition away from unwanted or overwhelming administrative and management duties. This is a perfectly acceptable strategy and may be very welcomed by a new owner - assuming the parties can work well together on a go forward basis. Working well requires that both parties be respectful of their new roles and it is incumbent upon the seller to not second guess or undermine the new owner as he or she begins to put their footprint on the business.

Either way, long-term employment contracts can be included in the sale agreement. The seller can stay on board and work with the business a few more years while still drawing an income and benefits.

If you are selling your business, in most cases you will not be able to walk away the day after the sale and in most cases you probably do not want to. Talk to your business intermediary about the true timeline of the sale and transition. If you want to sell while the price is right, but you are not quite ready to leave immediately, consider the options available to sell now and maintain a role with the company.

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