Role of Employment and Consulting

The podcast highlights that sellers who plan to stay in the business full-time for many years need to carefully think about their post-close compensation. Sellers who have primarily relied on the earnings of the business now transition to being quote-unquote 'just an employee.' The buyer expects sellers to be paid at a reasonable rate that incentivizes them to perform their work well and cover their day-to-day expenses. Sellers must also consider the buyer's perspective, as the buyer will have to find a replacement for the seller's role. If sellers want to be paid below market rate, it may be challenging for the buyer to find a high-quality candidate who can match the same results. The compensation discussion should align the expectations of both parties and consider the tax consequences of the transaction. Consulting roles can be structured with an agreed-upon hourly rate or annual salary, and such arrangements can also be included in the transaction.