At Viking, we firmly believe that one of the best ways to make the right decisions about selling your business (and most anything, really) is to be well-informed. So, we set out to create this four-part series as a practical resource for business owners like you. In Part One, we discussed negotiating payment terms; Part Two covered how to negotiate assets conveyed; and in Part Three, we dove into legalities to negotiate in a business sale.
A full look at the negotiable parts of a business deal has to include what happens after the deal closes. Here, in our final article of the series, we will look at the post closing agreement. Yes, your post closing transition is part of the business deal, and it involves points of negotiation you’ll likely want to consider well in advance.
Negotiating Your Post Closing Agreement: 3 Important Considerations
Customarily, the Seller provides a certain amount of time to help transition the company to the new owner. The first 30 days after closing are normally included in the purchase price. This period is to help transition employees, utilities, small contracts (think copiers, janitorial, cell phone, uniforms, garbage, etc.), and other administrative items that you didn’t complete prior to closing.
Any amount of time beyond included transition/training period becomes part of a consulting agreement or employment agreement. In transactions where the Buyer utilizes an SBA 7a loan, the Seller can sign a consulting agreement of up to 12 months from the closing. In this scenario, the Seller cannot be a W2 employee and therefore an employment agreement is not allowed.
Employment agreements are negotiated if the Seller(s) will stay and continue working in the company in certain roles, whether for a short or long period of time. Employment agreements are very common in deal structures that include earn outs. In these cases, the parties have specific roles and responsibilities laid out within the agreement terms.
There are certainly many other details involved in a transaction, but we wanted to highlight the major parts in this series. The reason we consider the post closing agreement a “major part” of a deal is, when it comes to potential lawsuit exposure from the buy side, there are only 3 main reasons someone may be legitimately sued. (I say legitimate because none of us can avoid frivolous lawsuits.) The first two reasons are:
- intentionally misleading (cooking the books, not disclosing material facts, etc.) and
- competing directly after the sale.
The third reason for potential exposure is not properly transitioning the new owner into the business, which is why we dedicated Part 4 to this portion of the business sale transaction.
As mentioned above, one of the best ways to make the right decisions when selling your business is to be informed. At Viking, we provide the information and guidance that helps our clients make decisions that are right for them, especially those that impact life beyond the closing table. Ultimately, you as the Seller will decide to accept, reject, or negotiate parts of an offer, including the post closing agreement.
You deserve to have confidence in every part of the selling process. If you are considering selling a business or have questions about the process, contact us for a confidential, no-obligation consultation.