Selling a business: taking on an advisory role

When selling a business, it is a common part of a deal for an owner to stay on for a short period to aid the transition of ownership, ensuring the new owner is in a strong position to drive the future success of the business. However, there are other options for those selling their business to remain in somewhat longer-term positions as business advisors or consultants. Why make this decision?

You may either:

  1. Have a financial stake remaining in the business following its sale.
  2. Have links/ties to its success, whether they be emotional, or financial. For instance, a deal may come with the caveat dependent on the future earnings of the business. In this case, you will have a stake in the future success of the business. Or you may own businesses that are linked in directly with the success of the business you have sold.
  3. Taking on an advisory role can be a great way to develop a new consultancy career.

There are considerations to make when taking on an advisory role, in whatever form it may be:

Form: in what capacity will you act?

  • You may sign a separate employment contract with the business. These often relate to short-term consultancy positions and come with their own pros and cons. Make sure that it is a separate contract to your business sale, as there is a risk that you will find it difficult to be an employee within your own business and you don’t want the failure of this contract to be linked to the sale of your business.
  • You may enter into a consulting arrangement, with the financial dimensions of the agreement depending on the deal you have agreed to in the sale of your business. This is a good way to remain independent, with the freedom to continue separate business opportunities. However, it is more than likely that you will be asked to sign a non-compete clause, so that you cannot start a business in direct competition with that which you have sold.

Length: for how long will your role as an advisor or consultant continue?

This depends on both what you and the buyer want. An inexperienced owner that you have a strong relationship with may want you as a long-term advisor, while others may just want you to aid in the transition. A common reason for a long term advisory role is when the business remains within the family.

Two men shake hands in an office.

How will taking on an advisory role be different to running the business?

Firstly, you will need to be aware of the pitfalls of keeping a foot in the door of your business. It is no longer your business to run, so even if you do not sign a new contract as an employee, you must still respect the new owner’s decisions.

Try not to fall into the assumption that just because you ran your business well you will be an equally effective advisor. Taking on this new role involves considerable self-reflection and restraint. Try to isolate some of the key strengths you developed over the years as a business owner. For instance, you may have developed strong negotiation skills, while you may have left the financial management of the business to someone else. Be sure that you advise according to your strengths.

READ MORE: Starting with the end in mind: planning your business lifecycle

Finally, decide with the new business owner whether your role will be a visible one or not. Remaining within the company may affect the business in ways you cannot foresee, such as in a manager’s ability to do their job while their old boss remains looking over their shoulder.

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