Buying a Business from a Retiring Owner

Do’s, Don’ts, and Other Considerations

Every day, thousands of baby boomers in the U.S. reach retirement age, and staggering number of them own businesses they have no succession plan for. According to Guidant Financial, 41% of all U.S. businesses are owned by baby boomers, meaning more than 12 million small-to-mid-sized enterprises may be looking for a next chapter. For buyers, this so-called “Silver Tsunami” represents one of the most favorable acquisition environments in a generation: profitable businesses, motivated sellers, and increasingly flexible deal structures. But buying from a retiring owner is not the same as buying from a strategic seller or a distressed one. The motivations are different, the risks are different, and the deal points that matter most are different. Here is a high-level look at some of our suggested do's and don'ts for getting it right. These are all merely items for your consideration, and like the remainder of my blog posts, do not constitute legal advice.

Key Man Risk

Do treat key-man risk as the threshold question—not an afterthought. When the retiring owner is the business—the one who holds every customer relationship, signs every contract, manages every escalation—what you are really buying is a paycheck with branding. Key person dependency can significantly erode a company's worth or render it unsaleable outright. Before you fall in love with the revenue number, stress-test the operation: ask what happens if the owner disappears for thirty days. If the answer involves panic, that is not a business you are acquiring—it is a liability dressed as an opportunity.

Don't skip this analysis because the financials look clean. A profitable P&L means very little if 80% of revenue walks out the door with the seller.

Representations and Warranties

Do demand robust representations and warranties from the retiring seller, and understand that these are the legal backbone of your purchase agreement. At minimum, your seller should represent the accuracy of financial statements, clear title to and good condition of all assets, compliance with applicable laws and regulations, the absence of undisclosed liabilities and pending or threatened litigation, proper tax filings and payment, no defaults under material contracts, and that the seller has disclosed all material facts affecting the buyer's decision to purchase. These are not aggressive asks—they are the baseline. Knowledge qualifiers like "to the best of Seller's knowledge" should be negotiated carefully, because the scope of what constitutes "knowledge" will determine your indemnification rights if a representation later proves false.

Don't agree to a purchase agreement that hand-waves these protections because the seller "seems honest" or because the deal is "too small to bother." There is no deal too small for representations and warranties.

Transition and Consulting Agreement

Do negotiate a meaningful transition and consulting agreement. Transition agreements typically run three to twelve months post-closing (some perhaps longer), with the seller committing up to 20 to 40 hours per week initially and tapering as the buyer assumes control. Compensation for the seller's continued involvement generally depends on the industry and complexity, and performance-based incentives tied to client retention or revenue milestones can keep the seller engaged through the transition period. This is where you protect yourself from the key-man risk identified in diligence: the retiring owner introduces you to every client, trains you on every system, and transfers every relationship in a structured, accountable way.

Don't let the seller walk away at closing with a handshake and a promise to "be available if you need anything." Informal arrangements are not enforceable, and goodwill evaporates quickly once the check clears.

Non-Compete and Confidentiality

Do require a non-compete, non-solicitation, and confidentiality agreement as a condition of closing. Non-compete agreements in the context of a bona fide sale of a business are generally enforceable, but your lawyer should check the laws of your jurisdiction and draft them accordingly. Typical non-competes in business sales run up to three to five years and should be reasonable in duration, geographic scope, and the type of restricted activity. For a retiring owner who genuinely intends to retire, this should not be a contentious point—but it needs to be in writing regardless.

Don't assume that because the seller is 68 and heading to the golf course, they will not get bored in six months and open up shop across the street. It happens. The non-compete allocation should also be agreed upon during purchase agreement negotiations, not deferred to closing.

Indemnification

Do structure indemnification with teeth. In most M&A transactions, a percentage of the purchase price is withheld in a third-party escrow account for 12 to 24 months to fund post-closing indemnification claims. The indemnification provisions should include clearly defined baskets (often 0.50% to 0.75% of the purchase price), caps, and carve-outs for fraud, tax, and environmental claims that bypass the basket entirely. Survival periods for general representations can typically run 18 to 24 months, with longer or indefinite survival for fundamental representations like title to assets, tax compliance, and environmental matters.

Don't let the seller negotiate away the escrow or convince you that their "retirement" eliminates the need for financial security post-closing. A retiring seller who will not stand behind their representations is a seller who knows something you do not.

Due Dilligence

Do conduct due diligence specifically calibrated to retirement-driven sales. Beyond the standard financial and legal review, buyers should confirm that employee classifications (W-2 vs. 1099) have been handled properly, and review whether material contracts contain no-assignment clauses that could render them void upon a change of ownership. Check for UCC liens, commingled personal and business finances, and whether the business holds all necessary licenses and permits in its own name rather than the owner's personal name. These are the issues that create "post-closing blues"—the problems that surface sixty days after the deal closes when the retiring seller is unreachable on a beach somewhere.

Don't shortchange diligence because the price is attractive. Small businesses frequently sell for multiples of a seller's discretionary earnings, and in today's environment buyers have leverage—but a discount means nothing if you inherit liabilities that dwarf the purchase price.

Don’t Take Shortcuts

Buying from a retiring owner can be one of the most rewarding transactions in the small business space—established revenue, loyal customers, operational infrastructure already in place. But the opportunity carries distinct risks that require distinct legal protections. Representations and warranties should not be formalities. Transition agreements should not be optional. Non-competes should not be "nice to haves." And indemnification escrows should not be negotiable. The buyers who get this right build on decades of someone else's hard work. The ones who do not can end up paying twice—once for the business, and once for the problems nobody disclosed.

If you are considering acquiring a business from a retiring owner, experienced legal counsel can help you structure the deal, negotiate the right protections, and close with confidence. Contact Elkhoury Law to discuss your acquisition.