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Value Creation Blog

Why a Stay Bonus is so Important

Posted by Josh Patrick

handshake A stay bonus is a payment that key managers receive if a triggering event such as death or disability of the business owner or sale of the business happens.  The purpose is to make sure key people stay with the business during a crucial time.

If one of the above events happen, the key managers in your company become more important than they even are today.  If the owner of the company dies or becomes disabled, it’ll be the key managers who keep the business running and allow the family to get some value from the business.

If the business is sold, the new owners whether they are outsiders or insiders will need those key managers to keep the business going.  In fact, in the case of an outside or third party sale, the new owner really doesn’t care about keeping the old owner.  They are going to be very interested in making sure key managers stay on so a smooth transition of ownership can happen.

In the case of an inside sale to managers or children of the owner, key people who don’t become next generation owners are likely to be important in having the business prosper.  Keeping in the good graces of these managers will be important in having the business continue during the transition period.

Stay bonuses can be provided in many varieties.  The most common is that if a manager stays on with the business for a period of time and helps it get through a critical period, there will be a significant bonus paid.  Often this bonus is between three and six months salary.

Although this sounds like a lot of money, it can help either keep business value in the case of the owner dying or help a selling owner get significantly more for their business when it’s time to leave.  Under either scenario the money you pay is a bargain compared to what could happen if you don’t have a stay bonus in place.

Have you thought about a stay bonus in your company?  If not, why not?

Josh Patrick

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Securities and Investment Advisory Services offered through NFP Securities, Inc. (NFPSI), Member FINRA/SIPC. Stage 2 Planning Partners and NFPSI are not affiliated.

This article is published for residents of the United States only.  Registered Representatives and Investment Adviser Representatives of NFP Securities, Inc. may only conduct business with residents of the states and jurisdictions in which they are properly registered.  Therefore, a response to a request for information may be delayed.  Not all of the products and services referenced on this site are available in every state and through every representative or advisor listed.

Topics: exit planning, business exit planning, stay bonus

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