It is far from rare for the buyer to require the seller to remain in the company for a number of years after a sale. Therefore, it's a good idea to prepare for the sale well in advance.
The businesses we work with are becoming increasingly complex and have solid potential, which affects the amount a buyer will pay for a business. This often leads to the question "Can the potential be realized, or am I paying for something that I won't fully benefit from?"
The potential must be realistic, and this is always the intention when we project the development when preparing a valuation. The ability to maintain a normal operating level is instrumental in realizing the potential - often the seller has a significant role in this.
In cases where the seller has not focused on making themselves dispensable in the day-to-day operations and in the relationships that form the commercial basis, partly in relation to customers and partly in relation to suppliers and partners, they are sometimes forced to participate in operations for a shorter or longer period of time to ensure that the basis is present.
Similarly, a variable payment method can be considered in cases where the price tag is characterized by a larger projection of the potential. Here, earn-out is a useful model, as it ensures that the seller is accountable for the expected development and yield.
The model is not a guarantee for the buyer, but will in many cases result in some form of security.
A smooth change of ownership distributes the amount to be paid
Another form of seller financing is to implement a smooth change of ownership. This model, which involves the transfer and payment being spread over a number of years, means that the buyer does not have to finance the entire purchase at once.
A smooth change of ownership also opens up the possibility for the outgoing owner-manager to have a role in the business during the transfer period.
A quick exit requires the foundations to be in place when the business is handed over to the buyer
If the seller wants to leave the company after a short handover period, but still wants to achieve the highest possible value for the company, it's crucial to have the operational and organizational foundations in place.
The division of responsibilities and delegation of tasks is an important area to be aware of. Ideally, the business should be able to operate without the presence of the owner-manager. Of course, this means that any middle managers and/or key employees must have a solid knowledge and understanding of the business, customers, suppliers and other stakeholders.
Ultimately, what matters is that the company can maintain normal operations.