A transition service agreement is what keeps a sold business running after close while the buyer stands up its own payroll, IT, accounting and benefits. It is negotiated late, priced roughly, then runs for a year at a number nobody modelled, which is why it produces more post-close friction than almost anything else in a deal. This page sets out how one should be structured and prices a realistic example.
A schedule per service, not one agreement
The body is short and the schedules are the document. Payroll is one, IT another, accounting another, each with its own scope, price and end date. That structure is what makes an early exit on one service possible without renegotiating everything, and a TSA drafted as one undifferentiated service runs to term whether or not it is needed.
The price, and the markup argument in dollars
Sellers charge cost plus a modest markup on the argument that they are carrying work they no longer benefit from. On this site's worked example, seven services at $4,200 a month with an 8% markup charge $31,752 a month and $381,024 across twelve months, on $352,800 of seller cost, with the markup returning $28,224. Expressed in dollars the argument settles faster.
Exit dates shorter than instinct suggests
The drafting default is twelve months on everything because nobody wants to set a date the buyer misses. The effect is that services migratable in ten weeks run for a year at cost plus markup. Shorter dates with an option to extend cost less and concentrate minds better than long dates with an option to exit.
A named owner on each side, measured on ending it
Left to itself a TSA becomes somebody's part-time burden and nobody's priority, and the services quietly renew. This is what the deal team hands over, and handing it over without a named owner is how a twelve-month agreement becomes an eighteen-month one.
Questions people ask about transition service agreement
How should a TSA be structured?
A schedule per service with its own scope, price and end date, so one service can exit early without renegotiating the whole agreement.
Is a markup reasonable?
A modest one is common. Judge it in dollars: 8% on seven services at $4,200 a month is $28,224 across a year.
How long should services run?
Shorter than the twelve-month default, with an option to extend. Long dates with an exit option get used to their full term.