Post-Closing Transition
Ensuring a smooth hand-over of a business from the seller to the buyer is critical in a business transaction. Buyers frequently need to be assured that the seller will help the buyer overcome a myriad of transitional issues after the sale occurs. Potential transitional issues after the sale include introducing the buyer to key customers, establishing the buyer’s relationship with key suppliers, and training the buyer to operate the business. A major component of preparing one’s business for sale is reducing the complexity of the potential transitional issues by reducing the seller’s role in the business. Generally, a business owner may ensure a smooth transition when selling their business by obtaining a transparent set of financial records, reducing the level of dependency that the business has on the owner, and by documenting a clear post-sale transitional plan with the buyer.
Determine Buyer’s Transitional Plan
- Before a qualified buyer makes an offer on a business, they should discuss their post-closing transitional expectations directly with the seller.
- The buyer should write down exactly what sort of post-closing assistance they will need from the seller.
- The seller should be prepared with a post-closing transitional plan where key transitional issues are addressed.
- Of course, most buyers want as much assistance as possible, but such assistance obviously has its limits.
- In any event, the buyer and seller must discuss this issue directly with the assistance of the professional business broker.
- After all, the business broker, lawyer, or accountants associated with a business sale will not be around to lend assistance to the buyer after the closing.
- Only the two principal parties – the buyer and the seller – bear the responsibility of having to give and receive post-closing assistance.
- They therefore must discuss this critical term of the deal directly and with as much candor as possible.
- That way the seller will know what to expect after the closing and give honest feedback about what post-closing transitional assistance they think that the buyer will need.
- It is quite possible that the seller will not be able or willing to provide the post-closing assistance that the buyer desires.
- This is particularly the case for a buyer who is not familiar or experienced in the specific business industry, or if the seller has a special skill set that can not be easily replaced.
- If the two parties are not comfortable with the post-closing needs of the other, then hopefully further negotiations facilitated by the business broker may resolve the matter.
Sellers Offer Limited Free Training
Depending on the nature of the seller’s role in the business, it is customary for the seller to offer a free period of transitional training to the buyer for about two to four weeks after the closing. The free transitional training period should always be explained in the purchase agreement, and should specifically spell out what is expected from the seller during the free training period. Once the free training period is exhausted, the buyer may seek to hire (and pay) the seller to continue working for the business in some capacity. If the owner is heavily involved in the day to day operations in the business, then the buyer will require a longer and more involved free training period.
Examples of Free Transitional Training Periods
- Let us suppose that John is negotiating the purchase of a pizzeria and Andy is negotiating the purchase of a small pool route.
- John has previously owned and operated pizzerias, and is quite comfortable with managing employees.
- In fact, John is planning to bring in his own ‘crew’ to work in the pizzeria.
- The free transitional training period probably does not matter to John, and he may only want a few days of training or even none at all.
- By contrast, Andy is purchasing a pool route where all the customers are familiar with the seller (who services their pools).
- In this situation, the seller’s presence after the closing is of paramount importance.
- Andy will want to be assured that the seller’s customers will remain after the closing, so Andy will insist on a detailed and specific post-closing transitional plan.
- This may include jointly sending letters to customers introducing Andy as the new owner of the pool company, jointly meeting as many customers as possible so Andy can be introduced to the customers, and having the seller’s full cooperation of assuring customers that they will have the same level of service as before.
Employment Agreement Between Buyer and Seller
Unlike a free post-closing transitional training period (usually two to four weeks), a buyer and seller may mutually agree that the seller remain working for the buyer after the closing as a paid employee or consultant. This is usually the case when the seller has a special skill set that is not easily replaceable or if the seller is otherwise instrumental to the business functioning properly. The post-closing employment agreement may take many forms including the seller working full time for the business at an agreed upon salary, or the seller working just a few hours a month for the business as a consultant. Everything is negotiable, and much depends on the learning curve of the buyer after the closing. If the buyer is depending on a post-closing employment agreement with the seller as a precondition to the purchase of the business, then the buyer should propose its exact terms in their offer. .
Disclosing the Sale to Staff and Customers
A very sensitive issue for many sellers is when exactly to tell their employees or customers that the business has been sold, and at the same time introduce the buyer as the new owner of the business. Most sellers wish to avoid doing so until the buyer actually purchases the business. Some buyers may still insist on meeting with the employees prior to the sale as a part of their formal due diligence. No matter when the buyer meets the employees, the seller and buyer must lay out a game plan of how to tell staff and key customers about the sale.
It is imperative that all relevant issues regarding the post-closing transition of a business sale be discussed and negotiated directly by the buyer and the seller as early in the selling process as possible. A professional business broker should ensure that ensuring a smooth transition after the sale is addressed by both parties.
Give Martin at Five Star Business Brokers of Palm Beach County a call today for a FREE evaluation of your business.