What is the role of the seller post-sale?

The seller’s post-sale role can vary greatly. Depending on the nature of the business and their involvement in day-to-day operations pre-sale, they can be expected to remain involved with the company for one to five years.

For sellers that have minimal involvement in the business, the buyer may agree to a defined handover period (for example, six months), during which the seller is available to support as the need arises.

Sellers involved in the daily running of the business may be tied in for longer so they can gradually pass over responsibilities to the new owner, as well as recruiting for and training a replacement.

If the sale terms include an earnout period, the seller will typically be expected to remain in the business at least until the contingent consideration is agreed and finalised, so they can monitor and maximise profitability in order to achieve the earnout.

Completion accounts

Completion accounts are financial statements, prepared after the closing date to reflect the company’s financial position at the time of sale. They are used to adjust the purchase price based on any discrepancies between the estimated and actual financial status on the day of completion.

Key elements of completion accounts:

• Working capital adjustments to ensure that the business has sufficient working capital to operate post sale.
• Net asset valuations to confirm the value of assets and liabilities at completion.
• Dispute resolution involves clear share purchase agreement terms for resolving any disagreements over the completion accounts.

Completion accounts protect both buyer and seller, by ensuring the sale price accurately reflects the company’s value at the time of transfer. We at Rickard Luckin can provide vital support by meticulously preparing and reviewing these accounts, as well as handling the dispute resolution process as may be required.

Integration

Integration is the process of merging the seller’s business operations, systems, and culture with those of the buyer.  Note that a well-managed integration period will help achieve the strategic goals behind the acquisition.

Key integration steps:

• Cultural alignment: Bridging any cultural gaps between the two businesses.
• System integration: Merging IT systems, accounting practices, and operational processes.
• Employee transition: Communicating clearly with employees and managing their expectations throughout the integration period.

Integration is a significant part of the post-sale process, because it can make or break the success of the acquisition. When planned, managed, and communicated effectively, it will help minimise disruption by retaining key talent and ensuring business continuity.

Earnout reviews

Earnouts are contingent payments that are tied to the future performance of the business. They are a common way to bridge valuation gaps between buyer and seller because they incentivise the seller to help achieve future performance goals.

Key elements of earnout reviews:

• Review periods: Reviews should be regularly scheduled to assess performance against targets.
• Performance metrics: Post sale, we at Rickard Luckin can assess the targets (revenue or EBITDA, for example) that trigger earnout payments, to determine whether the earnout is payable and how much is due to the seller.
• Dispute mechanisms: Pre-defined mechanisms should be established to handle disagreements over earnout calculations, if the buyer and seller do not agree on the final position.

What are the essential post-completion milestones?

Below is an ordered summary of post-sale milestones, which can be used as a basic checklist.

1. Transition period: This initial period involves handing over control, ensuring all immediate post-sale obligations are met, and starting the integration process. The buyer and seller should maintain open communication throughout, and quickly address any issues that arise.
2. Employee and customer communication: Informing employees and customers about the change of business ownership in good time should help maintain trust and stability. Allow time for questions and concerns, so these can be resolved as part of the transition period.
3. Legal and regulatory compliance: Ensuring all legal and regulatory requirements are met post-sale is crucial. This includes transferring licenses, updating contracts, and fulfilling any compliance obligations.
4. Financial settlements: Finalising deferred payments or adjustments based on completion accounts, for example, ensures that both parties honour their financial commitments.
5. Strategic review: Conducting a strategic review, to assess the integration's progress and the achievement of initial goals, will also help identify issues and allow any corrective action to be taken in good time.

The post-sale phase is a significant journey, from the preparation of completion accounts to the intricacies of integration.

Navigating this phase with diligence and foresight will help achieve the best possible outcome from the sale, as well as setting a secure foundation for the continued success of the business under its new ownership.

Financial planning and wealth management support

Our Private Client Tax Team at Rickard Luckin can provide active tax advice on the personal implications of your business sale, both during and post-transaction. Our support can mitigate tax exposure and implement appropriate planning strategies.

We can also provide expert advice in managing post-sale finances, on matters that include pensions, investments, retirement, estate planning, and risk protection. Our experienced support will help you achieve your goals, take advantage of post-sale opportunities, and adapt to your changing circumstances.