Many business owners spend a lifetime building their businesses. Then, at some point in the future, they sell their business, and the business owner is no longer the owner. This can be one of the happiest and proudest days of the seller’s life, but for some, it is like they have lost a child they have raised. It can be anguishing and sad, and many feel a deep swell of despair that their business once filled up. It’s sad and true, and we’ve seen this a lot. It’s why we work side-by-side with our business owners to guide them through the exit journey.
Selling your business does not have to be such a final decision. There are multiple ways of staying on after selling business. So, the business owner can sell his business, and still be influential and take part in something he has worked so hard to create. Better yet, he can continue earning income from his business even after he has sold 100% of it. It’s true.
The three arrangements below allow staying on after selling business, for any level of involvement the seller wants. If the seller wants to be involved in day-to-day operations, staying on as CEO can be negotiated. If the seller wants to be involved in more of the high-level decisions and take a step back from the business, he can serve on the board as a Chairman. We will discuss these arrangements in more depth below.
Top 3 Ways Of Staying On After Selling a Business
1.Consulting Arrangement After The Sale
Some owners want to stay involved even after they sell a business, but in a limited way. Creating a consulting arrangement during the sale negotiations gives the seller a new source of income post-sale and allows for them to still stay involved in the business but in a more limited capacity.
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Sellers usually create an LLC and negotiate the fee and term-length for the consulting. This arrangement can be used to close a deal because it also gives the buyer assurance they will be getting guidance from the seller for a specified time. This is a good option if the seller is willing to relinquish all control of the business but still play a small role in the future of the business.
2. Staying On as Chairman or CEO After Selling a Business
If an owner still wants to play a role in the direction of the company, or the day-to-day operations of the business, staying on as the Chairman of the Board or the CEO after selling a business are options. Staying on as a chairman allows the seller to stay involved in the high-level decisions the business makes, providing direction and feedback to the management team. This arrangement in turn gives the buyer the ability to tap into the knowledge and expertise of the seller. This also allows the seller to make the business a very low time commitment, and still charge a fee for attending board meetings.
On the other hand, staying on as the CEO allows the seller to cash out of their equity but remain at the helm of the business. They’ll earn a good salary, sometimes retaining a small portion of equity, say 10%, or a combination of profit sharing or other incentive compensation to drive the growth of the business. We’ll discuss this option in greater detail in the next section. This is good for a seller who wants to realize and enjoy their hard work in the business, but also who still has goals they want to achieve to take the business to the next level. They can even negotiate an even higher salary than they paid themselves before the sale.
3.Staying On After Selling a Business by Retaining the Ownership
Sometimes in a sales negotiation, the seller decides they do not want to sell all their equity in the business. The seller will keep around 10-40% of the business and continue to grow the business for an even larger future sale. Successful sellers oftentimes make more money in the second sale with less equity. This typically happens when the buyer is a private equity firm.
Also read: How To Sell An Online Business | The Ultimate 2021 Guide
This arrangement may be the most lucrative one when executed successfully. We talk about getting a “second bite of the apple”. Retaining an equity position post-sale gives the seller the incentive and motivation to grow and scale the business, leveraging the buyer’s larger resources in terms of people and working capital. Many sellers are happy to see that when the company sells the second time, they made more money than when they first sold their business. That makes that second bite of the apple much sweeter!
Staying On After Selling Business: Conclusion
As it can be seen so far, staying on after selling a business and continuing to earn income can be very successful. Business owners have many options at their disposal when it comes to post-sale arrangements. These three arrangements are seen often in business transactions and can positively impact the seller not only financially but also mentally. These arrangements give the seller’s more time with their beloved businesses they have created, and a chance to earn even more money from them. It truly is a win-win for the seller.