Jul 6 2022
Amanda DeMatteis: Hi, Josh!
Josh Goodbaum: Hi, Amanda! What are we talking about today?
DeMatteis: I thought we could talk about what to do if you are a small business owner who is deciding to sell their business. So, maybe you are a lawyer; you’re an investment banker; you’re a realtor. You have your own business, and you are looking to either sell that or maybe it’s getting acquired by a bigger company. There might be some reasons that you would want to talk to an employment lawyer while you’re going through that process. Can you share those with us?
Goodbaum: Yeah. So a lot of people who sell their businesses would benefit from talking to an employment lawyer because many people who sell their businesses want to keep working. And most people who buy a small business, especially a professional services business like a physician or an accountant, want the former owner to keep working in order to transition the client base to the new ownership.
If you’re going to keep working, you want to try to get an employment contract that spells out your rights and your responsibilities and, more importantly from your perspective as the employee, the responsibilities of your new employer, the buyer of your business. And the time to do that is at the time of the transaction – the sale of your business – because you will never have more leverage in an employment relationship than when your future employer is trying to buy your business.
Now, what are some of the issues that can come up after the sale of your business where you’d wish you had a contract to spell out all the details? These include:
- How are you going to be compensated? Are you compensated purely on salary? Do you have a commission structure? Do you have an incentive structure? How is it going to mirror or differ from how you were compensated as an owner of this business?
- What’s the duration of this relationship? Are they going to keep you on for a year, two years, five years, as long as you want? What if the new owner wants you to leave at some point, or what if the new owner tries to change your job duties in some way?
- You used to own this business – you were in charge of everybody – now you’re not. What is your role exactly? And what happens if at some point, you say, “I don’t like the way this is going. I think I’m ready to leave.” Can you do that? How much notice do you need to give? What are the obligations of your employer to let you leave and to compensate you on the way out the door?
The reality is that contracts don’t matter if everyone is playing nice. If everybody’s getting along and they’re agreeing, it doesn’t really matter if you have a written contract. But business deals can turn messy fast, and that includes business deals that involve the sale of your business – in which you’ve invested your whole life and your livelihood and your energies – to another person or company. If everything goes south, you’re going to wish that you had a clear contract to protect your rights. And the best person to help you achieve that protection is an employment lawyer.
So, that’s why if you’re thinking of selling your small business, you really should talk to an employment lawyer while you’re going through that transaction.
DeMatteis: Makes a lot of sense, Josh. Thank you so much for the information, and thank you for watching. Take care!