Owner's Contributions Post SaleMar 15, 2022
A couple months ago, we talked about business sales and exit strategies. We got a lot of positive feedback surrounding that blog and wanted to continue the discussion this week.
We get asked a lot: “What is my role as previous owner after the sale of my business?”
Ultimately, that answer is tied to how much you are personally involved in your business; things like your name, your reputation, etc. We like to give the example of Sports Center vs the Dan Patrick Show. Sports Center can rotate through hosts with no real change, whereas The Dan Patrick show wouldn’t be The Dan Patrick show without Dan Patrick.
While a transition / sale is possible, it is not nearly as simple and easy to complete. The timeframe for transition takes longer and there are more bumps in the road.
With 20+ years of experience, we have seen a lot of business sales. That being said, there are 3 different levels of owner’s contributions post sale:
- Simplest and straight-forward: Within the sales contract, the owner/seller commits to be available for 3-6 months post-sale to provide a smooth transition. Things like passing along passwords, introducing large clients, helping with systems in place. I advise my clients to specify how many hours the seller will be available during this transition to mitigate any unmet expectations.
- The second level is where the seller enters into a consulting agreement with new owner. Typically, the timeframe is 6 months to a year. The seller becomes a 1099 contractor/consultant for the new owner.
- The third (and most complicated) level is a pass-off or earn-out. This is for when you, the owner, is intimately involved in the business. The purchase price is usually contingent on certain markers referred to as earn-out provisions. For example: if you are a podcaster this could be number of listeners, if you are a blogger, it could be clicks or open rates, or as simple sales volume post sale.
Here’s an example: Within our sister company, CPA On Fire, over the last few years we have created the On Fire System. This is a proprietary system for already established online entrepreneurs who are growing rapidly, scaling their business. The On Fire System helps them navigate the potential issues that can arise with rapid growth, particularly in their financial operations. Something like that is not tied directly to our managing member, Ron Parisi. That would make it easier to sell than The Ron Parisi System where he is the face of the company.
Even if you don’t contemplate a sale any time soon, I recommend you spend time working yourself away from being the center of your business. That way, when the time comes, you can sell your business in a simple, smooth process.