Seller Spouse Works in Business

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by a searcher from United States Air Force Academy
in Austin, TX, USA

1yr ago

Seller Spouse Works in Business

I'm looking at a business where the seller is CEO and the spouse is COO. There are project managers underneath them, but they are the only management. The business seems great except for this fact. The seller wants to exit but the spouse is willing to stay on for a period of time. Has anybody transacted a business like this? Are there any good ideas for ways to structure to reduce the risk?

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reply by a professional 1yr ago
from University of Michigan in Detroit, MI, USA

Hi ^redacted‌, as Brad asks above, is the spouse also an owner? If so, and you're looking to rely on SBA financing, she may not be able to stay on for more than one year.

Assuming that's not a problem, this situation isn't all that unusual, and is basically just key employee risk. Although this situation is slightly better than standard key employee risk because the seller and the spouse are tied together.

As such, one way to mitigate it is to secure a seller note (ask for at least 10%-15% of the purchase price). That way, the seller (and the spouse) have a vested interest in seeing you succeed post-closing, including giving you enough time and support to find a suitable replacement.

In the short term, having the spouse stay on is probably a good thing for continuity and you should feel free to ask her to commit to some minimum term. Tie this promise to the note, by making a portion of the note forgivable if she quits early.

Hope that helps. Happy to discuss further. Feel free to DM me here, or reach out directly at redacted

reply by a searcher 1yr ago
from United States Air Force Academy in Austin, TX, USA

All, thanks for your responses on this. I will find out if the spouse owns part of the business and incorporate some of these terms if we get to the LOI stage.