Sell Your Business and Stay On as an Employee

It happens much more often than you would expect. A business owner chooses to sell their company, but then they wish to stay on as an employee. We’ve seen several former sellers step into the role of employee after the sale, and they couldn’t be happier in their new job. However, there are a few things that you should keep in mind.

 

Are You Sure?

Many entrepreneurs run their own business because they enjoy being the boss and calling the shots. Especially in a business that they have worked tirelessly to build and maintain over the course of many years. They are used to being in that leadership role, and for some, it would be a difficult transition to go from owner to employee…especially if you have more knowledge in the industry than your new boss. So, our advice here is to be very honest with yourself when considering this option. Could you step down into the role of an employee while you watch the new owner of your company take over and run the business? Would you be able to handle simply fulfilling the tasks of the job, rather than making all of the decisions at the top? If the answer is yes, then it will probably work out just fine, but you need to be sure that this is what you want to do, and that you are mentally and emotionally ready for this change. Also, make sure that the person buying your business is someone that you respect and could see yourself working for. Because if not, then your employment with the company probably won’t last too long. Carefully consider these aspects of the transition before signing on the dotted line of your new employment contract. 

 

Agree an Employment Contract

Normally, the buyer and seller agree to a written employment contract during the Due Diligence period of the business sale. Exact pay, benefits, working hours, normal days off, vacation time, sick days, the duration or term of the contract, and defined job responsibilities are normally negotiated and agreed upon directly between the two parties. Our best piece of advice here is to be as clear and as detailed as possible. You want to make sure that everyone is on the same page as to how this new relationship is going to work. Us as business brokers usually don’t get involved with this part of the process, other than you letting us know that it’s done, and both parties are in agreement. When both buyer and seller or now employer and employee, have a meeting of the minds, you can choose to write up the employment contract yourselves, or that is something the closing attorney can do for an extra fee. It’s completely up to you. Normally the cost to do that is around $500, depending on the attorney. Using the closing attorney is normally a good choice, since they are working on behalf of the transaction. 

 

SBA Lending Requirements

If the buyer is using an SBA loan to purchase the business, there is one thing to keep in mind when negotiating the duration of the initial employment contract. That is the length or term of the employment contract. According to guidelines from the SBA, an employment contract must be LESS THAN 12 MONTHS. So, even if you plan to stay on with the company indefinitely, the employment contract you agree to at this point of acquisition just needs to reflect SBA guidelines. If it doesn’t, then there will be a problem with the loan down the line, and it could cause the closing to be delayed. Every lender is different in their advice and requirements regarding this topic, so just make sure that the buyer has communicated with their lender and that they know what their particular lender requires, as far as an employment contract is concerned.