We are often asked by business owners considering the sale of their businesses, what is an appropriate length of time to remain involved with the business for a training/transition period. Although there are many factors that come into play, as I will address below, the real answer is, “It depends.” We often break the training/transition period into three categories: short, medium, and long.
For short-term transitions, we usually see a fairly straight forward business, a buyer with industry experience, and/or a strong second-level management team in place. In this type, often the transition consists of introductions to key customers, suppliers, or strategic partners, with a specified amount of time allocated to interfacing with the employees. A typical short-term transition might last one to three months. It is also usually common to have a reasonable amount of telephone consultation time built in for several months after the sale. In most cases, there is no compensation to the Seller for short-term transitions, as it is built into the sales price of the business.
For medium-term transitions, the business may be more complex or the buyer may be less experienced. The components of the short-term transition would apply; however, there may be some nuances, such as going through a project cycle or becoming proficient in a key skill, such as bidding or designing a project. A medium-term transition might last three to six months. Sometimes the Seller receives additional compensation in the form of consulting fees for medium-term transitions.
Although somewhat rare, we have seen transitions last over 12 months. In these situations, the Seller may be treated as an employee. In SBA funded acquisitions, there may be a problem if the Seller stays on longer than 12 months.
There can also be some variables that come into play. For example, it may be prudent for the Seller to attend a trade show or purchasing trip with the buyer many months after the sale. In these types of situations, the company usually picks up the Seller’s reasonable travel expenses.
A good training /transition period can be crucial to the survival of the business after a sale and can be structured in many ways. It is important that both the Buyer and the Seller determine what is important and to adequately document the details of the transition to avoid misunderstandings that may come up months after closing.
(originally published in May 2014 eNewsletter)