Definition
A transition period, often called a handover period, is the agreed time after completion during which the seller stays involved to pass on what they know. The terms usually set out how long it lasts, how many hours the seller gives, what they will do, whether they are paid and what happens if they do not cooperate. It may sit in the purchase agreement or in a separate consultancy agreement, and is sometimes linked to an earn-out or deferred payment.
An earn-out is part of the purchase price paid only if the business meets agreed targets after the sale. It can bridge a gap between the seller's price and the buyer's view of the evidence.
Worked example
Bluebell Garden Design is a fictional UK business. The seller agrees to work full time for the first three months after completion, then two days a week for the next three months, for £5,000 a month.
During that time she will introduce the buyer in person to the 20 largest clients and write down how jobs are quoted. The final £100,000 of the price is paid once the handover is complete.
Why buyers care
The more a business depends on its owner, the more the handover matters and the more precisely it should be written down. A promise to "help as needed" is hard to enforce and easy to let slip.
List what must be handed over: customer and supplier relationships, systems and passwords, licences, pricing and the knowledge that sits only in the owner's head. Agree who tells staff and customers, and when. Too long a handover can leave people unsure who is in charge, so plan for the seller to step back in stages. Tying part of the price to a completed handover gives the seller a reason to see it through.