Should I stay, or should I go now?
One issue both Buyers and Sellers need to consider, (although from different perspectives), is whether the Seller should stay on for a period of time, after the sale has completed.
Often, when a Seller wants to exit, they just want to take their money and run.
However, it some cases is can be useful for the Buyer to keep the Seller on board for a period of time after Completion of the deal, for the following reasons:
- Knowledge of the business
Almost every business sale requires some sort of hand-over process.
Usually, Sellers don’t want to tell their prospective Buyers everything about the business, until they’ve actually signed on the dotted line. Even if the Seller is very open with their trade secrets before the deal completes, there’s usually still a lot of admin and procedural information that can only really be handed over once the Buyer is actually in place.
What this means is that for the handover process to take place smoothly and efficiently, the Buyer usually needs the Seller to continue to give them advice and assistance for a period of time, post-completion.
If the Seller hasn’t been personally involved in the day-to-day running of the business, the bulk of the handover process can often be achieved via the remaining staff members.
When that’s the case, keeping the Seller on board may not be so important.
- Customer retention
If ongoing clients or customers are a key asset of the business, you need to handle the transfer of the business into new hands very carefully. The last thing you want, as a new owner, is to see your future customers cancelling contracts or shopping around for alternative suppliers, once they discover the business has changed hands.
If the Seller has built up long-term close relationships with their clients, it’s very important to reassure them that you, the new owner, remains a ‘safe pair of hands’ for their continuing business needs.
That might meant that you have to keep your Seller on, in some capacity, to keep the existing customers happy whilst they get to know the new owner.
There are no free rides
So far we’ve been talking about the Buyers, and why it may significantly benefit them to keep their Seller on board post-sale. But there’s a big potential problem with this, namely that the Seller might not be too interested in continuing to work for someone else’s business.
If that’s the case, then the Seller is going to need to offer an incentive, to get the Buyer to hang around – and that usually means money. Often, it can giving the Buyer quite a lot of money just to show his face around the place for a couple of hours a week.
As you can imagine, this can become a big sticking point, if your lawyer doesn’t handle it with a lot of legal intelligence.
If the Seller knows that the Buyer really needs them to pull-off a smooth transition,, they can insist on being hired for a lengthy ‘consultancy period’, at a hefty fee. If that happens,, the Buyer should really look at this ‘consultancy payment’ as part of their purchase price. From the other side of the deal, these types of post-deal consultancy periods can also be a very useful way for Sellers to maximise the amount of cash they get from their sale.
But long-term consultancy arrangements of this type need to be crafted with a lot of legal intelligence to work well. Your lawyer should help you to document exactly what will be expected from the Seller during this period, and should also specify the situations and circumstances where the Buyer would entitled to terminate the agreement.
The devil is always in the detail.
If this sort of ‘small print’ isn’t ironed out before you sign on your deal, it can create a very uneasy working relationship between the Buyer and Seller, which can often end in disaster.