I am selling my business. Will I need to train the new owners?

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How can we help?

The short answer is “Maybe.” It all depends on what the contract of sale requires. The real issue is what you want to negotiate for in that contract. It will likely be drafted by your solicitor.

Many buyers of an ongoing business expect a period of training. How you want to offer it will likely depend on three things: timing, financial arrangements, and your state of mind about parting with a venture that you may have put years of work into building.

Pre-settlement vs. post-settlement

At settlement ownership of the business is officially transferred to the new owners. There is usually a period of time after the sale contract has been signed but before settlement. During this period many sellers offer some general training about how the business runs. Buyers may think of it as a later stage of due diligence during which they may come to a fuller understanding of what they are about to buy.  This phase of training may also include an introduction to key suppliers and contractors. If employees are not fully aware that the business is to be sold, they will realise that at this point.

Post-settlement training is often more substantial and may be particularly important if the buyers are inexperienced or the business is particularly complicated. It may also involve your staying on for a period of time in a managerial role.

Financial issues

At the outset, it is important to acknowledge that training, however much you offer to the new owners, is valuable. It should be factored into the sale price and described as particularly in the contract as the hard assets being sold. Make sure to value it adequately.

Secondly, consider that if the sale falls apart after pre-settlement training has occurred, that valuable asset may have been wasted. If you have already conveyed specific training or proprietary information, you may have, in fact, weakened the market position of your business. This is one reason that pre-settlement training is often relatively general.

Finally, remember that if you are offering owner financing of the transaction, you have a financial interest in the future success of the business. Offering training to the new owners may increase the likelihood that you will get paid the negotiated price.

How do you feel about continued involvement?

By the time many entrepreneurs are ready to sell the business, they are well and truly done with it and eager to get on to the next new thing. When all other issues are concerned, this would argue for limiting post-settlement training.

On the other hand, many who have built a business feel great loyalty to long-time employees and customers and would like to have a continued role. Consider, though, that it is often very difficult for someone to transition from being a business owner to an employee of or outside consultant to the enterprise. The power to make decisions has moved on to the new owner.

Many advisors counsel limiting the period of post-settlement training or, at least, contractually defining pre-set exit points and the compensation due at each point.

 If you are selling your business, the attorneys at Owen Hodge Lawyers would be happy to assist you. There are a lot of things to consider as you weigh the pros and cons, timing and extent of training that you are interested in offering to a new owner. These should all be resolved at the contract negotiation stage of the sale. It is far better to address the question of training new owners before the contract is signed. Call us to schedule a consultation at 1800 770 780.

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