Stay Bonus When Selling a Business: Keeping Your Key People Through the Sale
A stay bonus when selling a business is a payment to a key employee for staying through the sale. For a franchise owner it is one way to keep the people a buyer is counting on. In our view, when you set one up matters at least as much as how much you offer. We found no published research that tests that, so treat it as our reasoning, not a finding.
What is a stay bonus when selling a business?
A stay bonus is a payment to a key employee for remaining with the business through a sale. It gives the person a financial reason to stay while a deal is in progress, instead of looking elsewhere once they sense one is coming.
TKO Miller, an M&A advisory firm, wrote in a 2022 blog post that stay bonuses for key employees in a business sale are often between 50% and 100% or more of salary, with part paid at closing and the rest after a defined period under the new owner. That is one firm's range for business sales in general. We found no second source for it and none specific to franchise sales, so use it as a starting point for a conversation, not a formula for your unit.
A stay bonus is a real contract with an employee, which is why the last section sends you to an attorney.
Who on my team needs a stay bonus?
Start with anyone a buyer would worry about losing and could not replace quickly. For a single unit that may be one or two people, such as a general manager and whoever keeps the books. A manager who ran the unit while you were away is the kind of evidence we describe in pre-sale moves that don't increase value, and that person is also the one you least want to lose before closing.
Approval is part of every franchise sale, so there is a stretch between an accepted offer and closing when your franchisor reviews the buyer. In our view that is a stretch in which a key person may start looking, because staff can hear things before you have told them.
When should I set up a stay bonus?
Before anyone on your team can tell a sale is coming. In our view, a stay bonus offered early reads as ordinary planning. The same offer made after an employee has noticed something reads as a reaction, and a reaction can prompt the very departure it was meant to prevent. We found no study of how far ahead owners start and no source for a number of months, so we give none.
If you are already in a sale process, having the conversation late is still better than not having it. Earlier would have been better.
Confidentiality is available throughout a sale, so who on your team hears, and when, is your decision. Asking someone to help sell the business they work in, before you can tell them everything, is an awkward conversation. A planned bonus gives you something concrete to say.
Does staff turnover affect what a buyer will pay?
It can. A buyer prices a franchise partly on the assumption that the team stays, and a team a buyer trusts to stay is less for them to discount. That is our reasoning. We found no published figure for how much turnover changes an offer, so we give none.
Staff continuity is one of the inputs behind why a buyer's number differs from yours. A stay bonus does not guarantee anyone stays. Treat it as one part of getting ready to sell, not something to settle the week before closing.
What if I own more than one unit?
Treat it as several decisions, not one memo to everyone. A general manager at each location, a regional lead who holds relationships you no longer touch, and a bookkeeper who is the only person who sees how the books tie together across units could each hold up a deal. Each conversation has its own timing and needs its own agreement.
Each unit also has its own remaining term and its own transfer, so the people at the unit you sell first may need a different timeline from the rest. We found no source on how buyers weigh a team across a mixed portfolio, so that is reasoning, not a finding.
What should I do before I talk to my team?
Start with three things you control: list who a buyer would worry about losing, decide when you would raise it with each person, and write down what you want each of them to do through closing.
Then take the list to an employment attorney to draft or review the agreements, and to your CPA for how the payments are treated. We are not the right people to draft an agreement like this.
A free Opinion of Value shows you the worth side of a sale and commits you to nothing. It is a personal valuation page with a custom video walkthrough recorded by a senior advisor, free and with no card on file. Request your free Opinion of Value when you want a number to plan around. If you decide to sell, our sell a franchise page shows how we work with owners.
Frequently asked questions
Both names are used for a payment that rewards an employee for staying through a sale. This article uses stay bonus. We did not find a source that draws a firm line between the two.
We found no source that sets a rule. TKO Miller's post says you can sometimes negotiate sharing the cost with the buyer. It is a term of your agreement with the employee and may also be addressed in the sale agreement. Have your attorney read the two together.
Have the conversation now, after a short talk with your employment attorney so what you offer is drafted properly. Late is better than not at all, though earlier would have been better.