When looking to purchase a business, one of the most important factors that can ensure your success is to choose an industry that you have experience in. For example, let’s imagine that you have worked as a chef in a kitchen for ten years and the owner wants to sell the business to you so he or she can retire. It seems like a close enough fit, but sometimes our experience in the field is not enough to properly transition us into the new role as an owner. In this example, while excellent food is integral to the success of many restaurants, there is much to think about beyond the food to ensure the business still continues to operate—maintenance of the property, knowing how to address legal issues as they arise, understanding payroll, developing a strong marketing strategy, keeping up-to-date financial records, timely filing tax returns, and the list goes on.
A common solution is to hire the prior owner as a consultant. The prior owner has very valuable knowledge in that he or she has first-hand experience with this particular business and knows what has worked for the business and what hasn’t.
Read a sample consulting agreement or click here to review other sample legal documents.
The role of this consultant is defined in a consulting agreement, a legal document clearly stating a description of services that will be offered by the prior owner to the new owner, the manner in which they shall be performed, and how the prior owner will be compensated for his or her work as a consultant. This consulting agreement will define specific duties of the consultant, including making introductions, training the staff, advertising the business to existing clients and customers, and advising the new owner on business matters. The agreement will also explicitly state the fee paid to the consultant, using either a lump sum method or an hourly method, with any provisions for services performed in excess of the proposed amount of work. The consulting agreement may also detail possible expense reimbursements, support services, hours worked, and any other issue that the business owner or prior owner may want to address.
Consider a contracting agreement when you decide to purchase a new business as they can offer valuable firsthand experience on terms agreeable to both parties.
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