Selling a Business: Is staying with the business post sale a viable option?
In the final instalment of our Selling a Business blog series, corporate finance director Stephen Gregson looks at the issue of remaining involved with a business following a sale.
The short answer to the above question is ‘yes, to a degree’. If the business is being sold to management it can be easier (and sometimes necessary in order to make the deal fundable) for an owner to retain a small stake in the business. This also makes sense from the buyer’s perspective because it usually makes for a smooth transition of ownership as well as business continuity.
Sometimes buyers want to structure the deal around a series of future profit-based payments and usually would contract the vendor to remain in the business for that future period. Such arrangements are referred to as an ‘earn out’.
However, it’s important to formalise any such agreement – even where family firms are concerned. For example, if money is left in the business, the repayment terms should be set out in a professionally drafted contract.
In a family business the exiting generation may be fairly relaxed about deferring a significant chunk of their share value, or leaving cash invested in the business. Even so, you should ensure that the appropriate tax planning implications have been taken into account.
Many of these flexible exit options have been available for some time, and a gradual transfer of ownership has been commonplace for both family succession transactions as well as management buyouts.
On a trade sale, it is usually the case that the vendors are not required to remain in the business for anything more than a few months (usually no more than six) post completion to assist with the smooth handover to the new owners.