Most business sales end with the new owner taking complete control over the business and the old owner relinquishing all official interest in the company. But it is also possible, and often desirable, for the seller to stay on in the role of advisor and consultant.
This can make sense on many levels. The outgoing owner is the person who knows the business inside out, from dealing with suppliers and employers to understanding the customer or client base.
It can be beneficial from the seller’s point of view, as they are given an opportunity to tie up loose ends and be sure that they are placing the new owner in the best possible position for the business to succeed.
But having the seller stay on as advisor can be even better for the buyer, especially if they are relatively inexperienced in the particular field or in business management. It can act to sweeten the deal and provide the buyer with a level of security going into the purchase, and having this safety net can add value or even make or break the sale.
What the seller can offer
The seller can in most cases certainly offer the buyer experienced, informed advice. But it is important to consider whether this is needed or useful in the new business structure.
The new owner may have very different ideas on the company’s future and these could conflict with the old view. If the buyer is planning on continuing with the same strategy then the seller’s guidance is likely to be more useful and appreciated.
In this scenario, they can offer tailored advice and act in a more hands-on role with regards to training and development.
Defining the seller’s new role
If the outgoing owner does stay on in an advisory capacity, it is important that both parties understand and are happy with his or her new role. While it may be difficult to view the buyer as the new head of the business and a degree of emotional attachment is only natural, the seller must be able to accept their new position.
It can be helpful to clarify their role in a formal contract, confirming them as a freelance consultant for a defined time period. This document should elucidate the parameters of the position in a clear and straightforward way, including areas such as working hours, particular areas where they are expected to provide advice and any training responsibilities.
Avoiding conflicts of interest
One of the issues that can come up with this arrangement is a conflict of interest between the seller’s advisory role and any new projects. While it is natural to want to focus more time and energy on new endeavours, if the seller stays on as a consultant it is only fair to ensure that any advice is appropriate and impartial.
The seller might also be planning to set up a new company in the same, or a related, field. This could lead them into direct competition with their old company, which is clearly a conflict of interest and not in the new owner’s best interests. Any relevant plans should be declared prior to the sale being concluded and it is common for contracts to include non-competition clauses.
This article was contributed by BusinessesForSale.com, the market-leading directory of business opportunities from online media group Dynamis.