How Long Is The Seller Expected To Stay Involved After The Sale?
The sale of a business is necessarily complex. The business is more than just its property and processes - it’s made up of the people who guide the business through choppy waters and toward its goals. Businesses are often compared to ships, and the captains of those ships are the business owners.
When you sell your business, you’ll need to help the new owner steer the ship for some time - at least until they get their proverbial sea legs. How long will you have to stay on? It varies from business to business. Let’s take a look at why:
Common timeframes for the seller to stay on
Generally, the seller will stay with the business in a consulting capacity for at least 2 months. There are circumstances in which the seller will stay on for less time (around one month). In rare cases, the seller may be asked to stay with the business for a year or more - in these circumstances, the seller would still receive a fair market rate for their work.
The factors that affect how long a seller will stay on
The more complex a business is, the more likely it is that a seller will be expected to stay on for longer in a consultant/advisory role with the business.
Franchises are an exception to this rule. Even with fairly complex franchise operations, the franchisor is likely to fill part of the advisory role that the seller would fill otherwise.
A well-trained management team can also reduce the amount of time the seller is expected to stay on. When the management team can oversee every element of business operations, and they plan to stay on after the seller leaves, the buyer will be less likely to require the seller to stay on for longer periods.
It’s important to remember that staying on helps to establish a level of trust between the buyer and the seller. When the seller is willing to stay on and consult, it indicates to the buyer that they are willing to keep their reputation tied to the business for some time. By staying committed to the success of the buyer, the seller shows that they’re confident in the business they’ve sold.
Sellers can also request to stay on for longer periods of time at fair market value - many sellers still enjoy overseeing some elements of their business, or even working in a customer-facing capacity. This is something that buyers are often happy to allow - it shows that the seller is still invested in the success of the business.
When is all of this negotiated?
Many of the terms for the sale of the business, including how long the seller is expected to stay on, will be spelled out in the Letter of Intent. The post-sale training terms will be determined based on what is required to properly train the new owner, as discussed above.
The salary for the seller in their role as consultant/advisor will be included in the sale of the business, if this period is only for one to three months after the sale.
Want to learn more about how the role a seller is expected to play after the sale of their business? Curious about how business sales work? Are you looking to sell your business? Click here.