Selling a business and walking away can be very difficult, because most privately held companies are dependent on the owner. In most cases, there’s a transition (“training” 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 a year. In most situations, the buyer wants the seller to remain on board to shorten the learning curve and help with the smooth transfer of key relationships.
In the typical business sale, a transition period of 1 to 2 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). 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 (see Case Study A).
For the owner who wants to sell the company and leave quickly, the focus should be on the development of a strong management team. Be sure to have your key employees/managers develop relationships with 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 more valuable your company.
If you’ve established a capable management team, less time will be required for the transition to the new owner. In addition, a well developed team adds value to your company, because the ongoing performance is less dependent on the exiting owner.
There are some owners who want to sell but just aren’t ready to quit working. They may be looking to sell early to get a premium price while the market is in their favor or to get away from unwanted operational and management duties.
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, benefits, and possibly a share of business growth.
If you’re 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 don’t 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’re not quite ready to leave immediately, consider the options available to sell now and maintain a role with the company.
Case Study A:
Our client owned a thriving company with approximately fifty employees. The buyer, a publicly traded company, asked the seller to continue for 2 years as general manager of the company, which became a division of the buyer. Our client received financial liquidity from the sale and continued managing the company that she founded.
Case Study B:
Our client was seeking to semi-retire and pursue other interests. He had about 30 employees, and wished to be free from the operational concerns of the business as soon as possible. The buyer and seller agreed to a 1 month training/consulting period that was adequate to smoothly transfer customer and vendor relationships.
In both cases the transition was successful and met the goals of the buyer and the seller. It proves there are multiple paths to a successful transition, depending on the business position and needs of both parties.
Businesses with little dependence on their owners have more options for management transition and command higher valuations. We recommend that you work to build a company that gives you multiple transition options. You will be glad you did.