Quick answer: anything you damn well please! Sail around the world. Train for a triathlon. Find the perfect trout stream. Play golf every day.
Sounds great, but reality is a little more complicated. You can’t just walk out the door the day after you sell your business – and most owners don’t want to. They understand that in order to protect their employees and the legacy of what they have built, they will have to stick around for a bit. That being said, some owners still want to exit as quickly as they can; others would like to continue to work for a few years, although with reduced hours and responsibilities. Some owners might want to retain a piece of the business and cash in on the upside that the buyer creates. The right Business Broker / Advisor can help structure your post-closing arrangements as part of the overall deal and create a situation that works for both you and the buyer.
Although post-closing arrangements are custom-tailored to individual needs, they fall broadly into three categories:
1. Short-Term Transitional Services
Sellers who want to exit quickly should understand that they will need to stay a minimum of 2-3 months after closing to train and familiarize the new owners with all aspects of the business. This includes introducing the buyers to your employees, familiarizing them with your operational procedures and transitioning client relationships. Often in this type of arrangement, your responsibility is full-time for the first month or two, and then reduces to part time. These arrangements typically include a consulting component where you agree to be available for a period of up to one year after closing for occasional telephone, email or in-person consulting. Short-term transitional services are traditionally provided as part of the larger deal, with no additional compensation.
2. Longer-Term Employment
Sellers who would like to stay with their company for more than a few months can have a strong hand in influencing what their post-closing situation will be. Oftentimes we can arrange that the seller limits his duties going forward to the things he likes (sales for example) and avoid the things he dislikes (administration or HR). We can also often arrange for changes in his work schedule to improve his quality of life – shorter work weeks, more vacation time, etc. While these post-closing employment arrangements often have a term of between 6 months and 2 years, we have seen cases where it worked so well that the seller stayed on for 5 years.
3. Retaining an Equity Position
Buyers can bring more to the table than just the cash needed to consummate a deal. Buyers often bring professional management, additional capital to help the company grow, or other critical elements (such as new distribution channels) needed to take a company to the “next level”. It might be a good business decision in these instances for the seller to retain a minority interest in the company. The seller would then continue working for a period of time and use the assets the buyer brought to the table to help the buyer grow the business. At some point in the future, the seller elects for the buyer to buy his remaining equity at a pre-determined formula, which, if all goes well, gives him a higher valuation and allows him to participate in the growth that has occurred since he sold his majority interest.
For more information about issues that relate to selling your business, please visit us at www.primeinvestments.us. There are lots of white papers to download and blog topics of interest to business owners. If you would like to have a confidential discussion about your personal situation, click here or on the link below or call us at 240 290-5000. We’ll be happy to schedule a free initial consultation and complimentary business appraisal.
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Prime Investments Business Brokers takes the risk out of selling. For over 25 years Prime has been helping business owners in Florida, Georgia, Virginia, Maryland, Pennsylvania, Delaware, New Jersey and Washington, DC sell their businesses – without charging upfront fees.