There are many steps involved with the transition from the business seller and owner. It can, at first, seem overwhelming. However, you can help ensure a smooth transition by learning more about the process and discussing the details with the seller beforehand. Although the specifics for every business transition may vary and require a personalized strategy, this guide is designed to help buyers transition and begin their role as owner of a new company.
Closing The Sale
Closing the sale may take place virtually or in-person. Every sale is different, but there are several steps involved with closing that you can expect. Notably these steps include:
- Review and sign the purchase agreement with your attorney, the seller, and the seller’s attorney
- Complete the payment for the company. This could be done via an escrow agent or you can make the payment directly. If you are financing, then the agreed upon down payment amount will be all that is necessary to complete the sale.
- Receive access to all buildings, facilities, and equipment (see below)
- Confirm that the seller has transferred ownership for all included business assets (see below)
- Notifying employees, customers, and suppliers that the sale is complete (see below)
Closing Preparation
There are certain things you must do to prepare for closing to help ensure a smooth transition of ownership. Notably, you will need to prepare a range of documents that are needed for closing. Of course, the seller is responsible for most documents. However, you may need to bring documents such as a copy of the purchase agreement and your bank information.
Providing Access to Facilities and Equipment
The seller will also need to provide access to all facilities and equipment that is included in the sale. This includes keys, access codes, employee, supplier, and customer information, and more. Here are several key accesses that you should gain during the transition after a business sale is complete:
- Keys to all office buildings, warehouses, storage units, vehicles, equipment, machinery, etc.
- Access codes to all security systems, online technology (i.e. online databases), and other technology systems, such as point of sale technology for restaurants
- Employee sheets that include each employee’s job title, description, department, history, salary, and contract information
- A list of suppliers with details about their relation to the company and contracts
- Customer information that details the percentage of the company sales they account for and any contracts the company may have with them
Keep in mind, this is far from an exhaustive list. The requirements are unique for every company. It is important to work with your business broker to ensure you are able to gain full access to the company during closing.
The Transfer of Business Assets
The business assets also need to legally be transferred to the buyer. Your purchase agreement should discuss the assets that are included in the sale, all of which should reflect you as the owner after the sale. Your purchase agreement should also discuss any excluded tangible assets as well. Notably, the assets that may be included in the business sale are:
- Product inventory
- Equipment and work supplies
- Vehicles
- Furniture
- Technology (i.e. computers)
- Cash (working capital)
Intangible assets such as licenses, trade secrets, and trade names are exchanged as well as the tangible assets listed above. Keep in mind, tangible assets refer to anything that is physical, whereas intangible assets are non-physical, such as domain names and trade secrets. All of which have value. It is important to establish what is and is not included early on, and the sale price should be reflected accordingly.
Notifying Company Employees, Customers, Suppliers, Etc.
This is the last thing you may do before taking over as owner of the business. Some employees, customers, and suppliers may have already been notified of an imminent sale, in which case you will only need to notify them that the sale is complete and what the next steps are for you and your new company.
However, in most cases, the majority of employees, customers, and suppliers are not notified until after the sale is complete. This is done to protect confidentiality throughout the sale. It is important to discuss the best way for you and the seller to notify all parties to ensure there are no major business disturbances and to allow for a smooth transition of ownership.
Training From The Previous Owner
You and the previous owner should have already discussed their involvement with the transition of the company. Some owners are heavily involved, remaining on staff for up to a year after they sell the company. In other cases, owners wish to bow out as quickly as possible, and they may not be involved at all with training the new owner or they may be only available in a limited capacity (i.e. phone consulting for several months).
The extent to which you need the previous owner’s involvement depends upon your expertise and your preference. The quality of the existing workforce (and their experience) may also factor into the negotiations as to how involved the owner must be. Keep in mind, many owners are not willing to remain on staff for an extended period of time without significant compensation for doing so. However, if you have limited experience within the industry and business type that you are entering, then it is likely a good idea to try and negotiate terms for extensive training from the previous owner to ensure a smooth transition.
Are You Purchasing a Business? Sigma Mergers and Acquisitions Can Help
Sigma Mergers and Acquisitions helps buyers secure the best deal possible. We also assist our clients as they transition to an ownership role after the purchase. Contact us today if you would like to learn more about business transitions and/or need assistance with finding the right company to purchase for an affordable price.
