The buyer wants us to sign a Transition Services Agreement for back-office support after the sale, but they are leaving the pricing vague in the LOI. How do we structure the TSA pricing and resource limits to protect our cash flow?

Question

Tyler Smith · Accepted Answer

Transition Services Agreements are designed to ensure operational continuity, but if they are poorly structured, they can turn into a massive post-close operational and financial drain on your remaining team. Never sign a Letter of Intent that leaves TSA terms to be determined later. You must define the scope, duration, and pricing of these services upfront. First, itemize every service you will provide, such as accounting, IT support, or customer service. Set strict limits on the number of hours your team will dedicate to these tasks each week. Second, price these services at a premium, not at cost. Charge your fully burdened labor cost plus a fifteen to twenty percent administrative markup. This incentivizes the buyer to transition these responsibilities quickly rather than relying on your team indefinitely. Third, set a hard termination date, typically sixty to ninety days post-close, with steep penalty rates if the buyer requests an extension. This keeps the buyer focused on building their own infrastructure and allows your team to get back to executing their core quarterly Rocks and long-term V/TO goals without distraction.