Post Acquisition Transition Period

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November 12, 2021

by a searcher in Houston, TX, USA

In the case that a new manager will have to be paid while learning the ins and outs of the business under the tutelage of the owners, how have you structured compensation for current owners who are staying on for a 6 months full-time transition period.

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Reply by a searcher
from The University of Georgia in Atlanta, GA, USA
This was a tricky point of negotiation during my closing. The sellers (1 of the 2 in particular) wanted to stay on for a long period of time, 9-12 months, which was longer than I wanted them to stay on. What we ultimately agreed to was a tiered step down plan with an agreed upon compensation structured as a flat consulting fee. The structure we had was:
Months 1-2 post acquisition: Full-Time (defined as 32 hours per week)
Months 3-4 post acquisition: Part-Time (defined as 16 hours per week)
Months 5-6 post acquisition: On-Call (no specific hours but available to answer emails/phone calls

In the end we mutually agreed to end the consulting agreement with 1 owner after month 2 and the other owner after month 4. In my situation, I found that post closing working can be an emotional topic for the owners as they had put their lives into the business and needed a transition plan. Overall having the owners involved post closing is a delicate balance because they provide tremendous value in terms of experience, know-how, and introductions but it can cause some tense moments as they can struggle to fully understand that they are no longer the owners.

Happy to provide more details if interested.
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Reply by a professional
from University of Oregon in Portland, OR, USA
I agree that six months seems too long, unless there are outside relationships or the complexity of the business demands they stay around. But there should be a clear framework for transitioning, whether it is based on time worked, milestones, or another factor. I think you start with what exactly you need them there for, how the work will be structured, then determine the value they bring to that, and then get to compensation. Also build in the flexibility for yourself to ramp them down and out of the company faster, in case you are able to and it makes sense. Great communication and transparency about your goals go a long way toward setting expectations appropriately and avoiding bad blood on the way out. If they built the business, they probably still have a lot to add on the way out, if you can find a win-win dynamic to keep them engaged on some level.
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