Creative ways to accomplish a smooth ownership transition?

October 21, 2022

by a searcher in Garrison, Philipstown, NY 10524, USA

Hi Searchfunder community:

I have been speaking to a business owner who would like to sell me his business but suggested that I first work alongside him as a "highly compensated employee" to learn the business and ensure that there is a mutual fit. Implied here is that we would have a time and/or event-bound agreement to consummate the sale (not exactly sure how/if something like that would work).

Until now, I have been mentally preparing to buy a company with the standard LOI through Closing process in mind. In that scenario, the knowledge sharing would occur while the seller stayed on for a few weeks or months before largely stepping away. I had not considered a pre-sale "test drive" approach until now.

I am a bit hesitant to quit my salaried employment to become an employee at another company, but I can also see the benefit of first being in the company without having to risk my and investors' capital.

Does anyone have experience with something like this? Is there a way to structure it so I gain assurance that I can ultimately buy the business on terms we agree to up-front and he gains the confidence that I am the right person to run the company? Or is it better to do this the regular way with some guardrails written into a seller note agreement (for example)?

Reply by a searcher
in Chicago, IL, USA

This is a rapport-building problem more than a structural/transition problem. He's scared his life work might hit the floor and you're scared your safety net disappears – all legitimate concerns. You can do one of two things – Option 1.) Get to the bottom of his concerns with why he's hesitant (listen, don't talk). Deal making is as much psychology as anything else. Option 2.) Be vulnerable with him, tell him your concerns that the leap is just as scary for you. Once you address the emotions, then and only then move into deal structures that address each and every concern. For instance, "I can't be an employee, but I can come on as a consultant who performs an Officer's tasks (you need to be seen as an equal, not an employee). In order to accept this structure, I need 3-6 months of the proposed salary upfront so that I can be 100% focused on the transition."

I offer coaching and consulting on this exact topic should you need more help, feel free to message me.

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