Permanent Podcast: Real Talk About Private Equity and Buying, Selling, and Operating Small Businesses
Financial Structures: Owner Post-Close Employment & Consulting (EP.25)
Podcast summary created with Snipd AI
Quick takeaways
- Compensation for sellers post-close is crucial if they plan to continue working in the business and should reflect the value they add, including bonuses or incentives.
- Sellers who plan to stay in the business need to carefully consider their post-close compensation as they transition to being 'just an employee' and should align expectations with the buyer.
Deep dives
Importance of Post-Close Compensation
The podcast episode emphasizes that the importance of post-close compensation for sellers largely depends on the nature of the transaction. If the seller plans to quickly exit the business, compensation becomes irrelevant. However, if the seller intends to continue working in the business, their compensation plan becomes crucial. It is important for sellers to assess expectations with the buyer, especially if the buyer intends to keep them in a leadership role. In that case, the compensation should reflect the value the seller adds to the business, including bonuses or incentive compensation. Sellers should also carefully consider the financial trade-offs between a salary and incremental payout, as compensation increases would affect the company's earnings and subsequent valuation.
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