If you are selling your business, you may wonder whether you need to train the business’ new owners. In most cases, the new owners will require training in the management and operation of the business. Most business sale contracts will include an option for the seller to provide the new owners with training.
Standard form sale of business contracts in Queensland, New South Wales and Victoria all include clauses about a training period.
As the seller, you have specific insight into how to run your business. The amount of training and support you give the new owners will affect their ability to operate the business successfully.
This article explains what training you should provide the new owners of your business.
When Should I Train the New Owners?
Generally, training is either undertaken:
Completion, also known as settlement, is the moment when ownership of the business is formally transferred from you to the new owners. Once you and the new owners have both signed a business sale contract, a period of time generally passes before completion. Pre-completion training can take place any time from signing until the day before completion. In some cases, it may even begin before you sign the contract. Post-completion training takes place after completion.
Training generally takes place during business hours at the business’ premises for a few days either side of completion. However, the training period can be adapted according to the nature of the business and the level of training required.
This training is done at no further cost to the new owners. You should consider it as part of the purchase price.
What If My Business Requires Specific Training?
Your business sale contract may set out that you are to provide general training as discussed above. This might include:
training the new owners in the general operation of the business; and
introducing the new owners to key suppliers and customers.
However, the sale of business contract may also set out particular requirements.
For example, the new owners may request that you provide no less than 15 hours of trainingon the accounting software your business uses.
If the contract includes such an obligation, you must fulfil it. Failing to do so may mean that you have breached your contract. If the new owners request very specific training from you, you should consider how comfortable you are with being contractually obligated to provide it.
Should I Provide Pre-Completion Training?
After you sign a business sale contract, there are often conditions that must be met in order for completion to occur. If you provide the new owners with training before these conditions are met, you risk that training being a waste of time and resources if the sale does not go ahead. To avoid this, you may wish to negotiate that any training or support takes place once you have transferred your business to the new owners and they have paid the full purchase price.
Should I Provide Further Post-Completion Training?
You might need to provide more substantial training if:
your business is particularly complicated; or
the new owners are inexperienced.
You may be able to charge the new owners for additional training time. For example, the contract may set out that you must provide an additional 150 hours of training or that you must be available by phone for six months after completion. These more demanding obligations may entitle you to request payment for your additional time.
The new owners may ask you to stay on as an employee or contractor of the business after completion. This can be an attractive arrangement for you, as you are familiar with the business and can continue to earn an income, and to the new owners, as it allows them to use your insights and expertise. If you and the new owners agree on such an arrangement, you should enter into an employment or contractor’s agreement during the sale process. This ensures that your role, responsibilities and rate of pay are established before your engagement starts. You should also set out how to end the engagement to ensure that you will be able to do so on satisfactory terms.
What If I Do Not Want to Train My Business’ New Owners?
The training period may be difficult for you as the previous owner of the business. After completion of the sale, you will no longer be in a position to make business decisions. It may be hard to move on from your previous role. Like many business owners, you may have an emotional attachment to your business and feel conflicted between wanting to negotiate the least amount of training and wanting to see the business succeed. If you want the business to be successful, it can be a worthwhile task to train the purchaser as best you can. You should feel comfortable including your training requirements in the business sale contract.
When you sell your business, the training you provide to its new owners may mean the difference between its future success or failure. Your training may occur:
Depending on your business, it may be general or highly specific.
Your training should provide the new owners with everything they need to know to operate the business successfully. This may require ongoing training or your engagement as an employee or contractor. It may be challenging to remain involved with the business but no longer have the ability to make business decisions. However, you should ask yourself whether you want your business to continue to be successful after the sale. If you do, you should be willing to provide the new owners with training.