For business owners who want to plan their exit strategy but aren’t ready for a 100% departure, there are many ways to stay involved post-transaction. From retaining a minority stake in the business, planning a 3-5 year post closing employment contract or a short 6-12 month consulting role, sellers have options for their exit.
1. Minority stake. Some owners aren’t quite ready to leave, but want to take some chips off the table and bring in some outside support and capital to grow their business. By selling a minority stake, you can receive the security of a partial sale with the future benefit of a second sale while staying actively involved in the business. In this role, you may or may not remain at the helm of the company – largely dependent on the buyer – but will likely narrow your scope and work in the facets of the business where you provide the most value. Instead of running payroll or reviewing supplier agreements, you can fill the role that suits your strengths – business development, sales, etc. This is ideal for an owner who desires a more meaningful period of time in the business post-transaction. Typically a buyer will have the seller execute a multi-year employment agreement post transaction. This situation is ideal for a seller who wants to remain with the company 3-7+ years.
2. Multi-year employment agreement. In some instances, sellers will execute a full sale but need to remain with the business for multi-years post-closing. This may happen if the company doesn’t have an internal operator to step into the President role post-closing and the buyer needs to hire an executive to run the business. Ideally, the seller will stay in the President role post-closing and then a new executive is hired and integrated into the business as the seller transitions out. This scenario is typically a covered by a 1-3 year employment agreement.
3. Short-term consulting role. Owners who have a simple business operation or are partially/fully absentee may desire a shorter transition period. In these cases, there may not be a long-term requirement post-closing because there is already a solid team in place who handle much of the day-to-day oversight. A short term consulting role is ideal for an owner who has largely “passed the torch” to his team. This role typically requires the seller to offer part time or full time support for 3-12 months post transaction.
Seller transitions are not one-size fits all. There are many ways to get both buyer and seller comfortable with the amount of support and time required by the seller and this conversation is important to have upfront, before an LOI is signed.