I was having a conversation regarding some of the issues faced by owner managers when they decide the time is right to sell their business but the buyer wants to keep them on in some capacity. So, I thought I would set out a summary of how this may work and what you should prepare for.
Planning a timely exit is a critical part of looking to new horizons or approaching retirement for owner-managers. The sale of your business will often bring mixed emotions, however bowing out gracefully after decades of nurturing a business is no simple matter. You may be ready to close the door behind you and start a new life, be it in retirement or another venture, but it also means coming to terms with letting it go.
Having painstakingly prepared your business for a sale, finding the right buyer is the top priority. Frequently, purchasers recognise the key roles covered by the exiting shareholders and insist during negotiations that they stay on in some capacity to ease the transition. In an ideal world, most owners selling up would just like to walk away. However, it’s extremely common for buyers to want the owner-manager to stay on for a while in some capacity. Normally, a period of up to two years is agreed during which the old owner will work with the new. Often this attendance is considered in the price paid for the business – a seller might achieve a higher price by agreeing to stay on.
Think about how much any extra money is worth compared to the obligation to stay on. What are the personal implications of staying on after a sale? Having been their own boss, those who founded or have run their own business are sometimes not natural employees, so they should think carefully about how an on-going relationship will work. If you want to work very flexibly in your hours or location, consider carefully whether that flexibility can be maintained.
If you do not want to be an employee, a consultancy arrangement – agreeing on a number of days a year to be worked that is convenient for the outgoing owner might be more palatable. What is crucial is to agree upfront the exact details of your involvement after the sale with your preferred buyer – write down how, when and where you will work – to avoid unreasonable expectations and misunderstandings.
Remember that the business might also be sold on again, at which point informal, verbal arrangements could break down. Make sure the arrangement is crystal clear and down on paper, rather than relying on a gentlemen’s agreement. Other personal considerations are what could be called ‘legacy issues’. For many business people, the way they are perceived by their local community after a deal is a key concern. So assurances and arrangements around, for example, job security for employees would also come into the negotiations.
You’ll need to be mentally prepared for seeing changes to the business as the new owners make their mark, including decisions you might not agree with. You might also find it disconcerting no longer having a ‘big picture’ overview and being isolated from strategic decisions and conversations.
Adapting to changes in these relationships requires mental preparation and a degree of distance on your part. And then, after the period you have committed to is over, you’ll hopefully ride off into the sunset as the business you nurtured takes flight in a promising new direction.
Remember that the business might also be sold on again, at which point informal, verbal arrangements could break down
