Seller compensation after close

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by a searcher from Miami University of Ohio
in Cleveland, OH, USA

1yr ago

Seller compensation after close

I am nearing a signed LOI and one of the concerns is what the sellers will be paid during the transition period. How have other people handled this?

1 Like

386 Views

reply by an investor 1yr ago
from Ivey Business School at Western University in Boca Raton, FL, USA

For searchers that we invest in, we suggest a market based hourly rate to help move the process along and to keep the seller engaged, knowing they will be paid for their time.

reply by a searcher 1yr ago
from University of Maryland at College Park in Havre De Grace, MD 21078, USA

Echoing thoughts from above with a slightly different perspective and suggestion. Separate in your mind (and the agreement for negotiation purposes) the seller's responsibilities as 1) the training period & 2) the transition support period after that training period. During the training period, the seller will spend much more time and effort in active participation. The secondary transition period comes when a seller is out of the business and is mostly interested your success because of their motivation to be paid or see their legacy succeed. The motivations for the two periods are very different. During training, the deal (even if closed) can unwind due to covenants in the agreement causing irreparable harm to you and the seller and of course the business. During the support period, the seller is concerned about any further compensation due (holdback, seller note, earn outs, standbys, etc...) and is more likely to help when they know their success if also yours. With that said if you have any hiccups that you are going to offset the note by without the understanding of the seller - be sure to work closely before they stop answering the phone/email while they are on the beach or on the boat.