Most business owners give a lot of thought to what they are going to do once they no longer own their companies. But with all the anticipation of retiring, traveling, spending more time with family, starting a new venture or simply slowing down, it’s easy to forget about what you’ll be doing immediately after the sale. All of those other dreams and goals have to wait – first you have to fulfill your post-sale obligations to the new owner.
As simple as you might think your business is today and as quickly as you think a new owner should be able to pick everything up, try and remember your first day in your business and how much you didn’t know or understand. Buyers interested in acquiring your company are going to want to ensure that you will provide whatever training and transition assistance they need to make the ownership change a smooth one.
What that training entails will depend on literally dozens of unique aspects of your business and the buyer, but below you will find some of the most important concepts to consider when thinking about how long you’ll be with your business after the sale and what you’ll be asked to do by the new owner.
Your Duties as the Owner
Buyers have to understand what you do, plain and simple. They need to know everything from what your day-to-day duties are all the way to what you might be responsible for doing only once a year. When buyers have a clear picture of exactly what shoes need to be filled after the sale, they can propose a transition and training plan that makes sense for them and ensures the business will not suffer.
Try to keep in mind the big picture here – whatever it is that you’re responsible for ultimately has to be taken over by someone else after the sale. So the more heavily involved you are in the business, the longer a buyer is probably going to want to you around to train and transition. In fact, there are instances where the owner is so irreplaceable that the buyer has no choice but to request that you stay on board for an extended period of time. There can also be scenarios where you “are” the business, and it makes it difficult for any buyer to imagine purchasing your company, period. With this in mind, as you start to give thought to the sale of your company, take some time to do an honest assessment of your involvement and duties. Then start to identify jobs you can delegate to other people within your organization. You may even discover a new hire is needed to make the business more efficient and attractive. Those types of adjustments will ease your post-sale obligations to the buyer.
Remaining with Your Company
It’s not uncommon for business owners to remain with their companies after they’ve sold them. This type of arrangement is more prevalent in larger businesses where the buyers tend to be private equity groups, investors and even industry buyers, as opposed to new owner-operators. Depending on your buyer, they might be planning to step in and assume your role, they might already have someone pegged to replace you or they may have no solution and need you to stay for a period of time. Many business owners will initially shy away from the idea of continuing to run their companies after the sale – what’s the point in selling it if you have to keep running it, right? But before you jump to that same conclusion, actually give some serious thought to what pains you about owning your business.
In the majority of cases like these, the things owners despise about running their companies are the very responsibilities the new ownership takes over. Things like insurance, financial reporting, managing cash flow and capital expenditures are examples of the responsibilities new ownership assumes, taking the day-to-day pressures of owning the business off your shoulders. So don’t dismiss the idea of continuing to work for the business after you sell it without really giving it some thought first. You may end up loving the opportunity to be an actual employee rather than the owner, and only worrying about your job instead of every tiny aspect of the business.
Operational Systems & Processes
Your business’ operations are yet another critical component a buyer needs to be comfortable with post-closing. Of all the aspects of your business that a buyer must manage after the sale, learning the operation should be the simplest and most straightforward. However, if the business owner hasn’t documented that operational process, then training can be a huge headache. Before you decide to sell your business, simply write everything down! Every aspect of your operational procedure needs to be detailed. Whether it’s as simple as how the business gets opened and closed every day, or as complex as how 100 delivery trucks get routed every morning, write it down and explain how those things happen.
Having this type of operational procedure on paper has a number of benefits to you, personally. The most obvious benefit is that it will make training a new owner significantly easier and more efficient. Additionally, if a buyer knows you have this type of documentation available, they will most likely request a shorter training period because they feel confident they can be trained quickly. Another added benefit to having transferrable procedures is that your business will be more attractive to potential buyers and ultimately more valuable.
Customer transition is critically important to buyers. Once they understand the customers’ relationship with the business owner vs. the business, they will be able to better formulate a transition plan and explain what they need your help with after the sale. If you’re a business owner that has close, direct relationships with your customers and you are their primary point of contact, it wouldn’t be unreasonable for the new owner to request that you remain with the company for a period of time to help transition those relationships while still being involved with the business.
On the other side of that coin, if your duties with the business call for little or no involvement with the customers, then the new owner has less to be concerned about when it comes to customer transition and will most likely not ask for an extended period to help with those customers. This type or transition service is something you should expect to be included in the purchase price of your business and not a service you receive additional compensation for.
Another major concern buyers have is employee retention – when you leave the business and they take over, will they have a problem retaining your employees? In most cases, your employees and the buyer want the same things – no changes. Buyers are typically concerned that once you leave the business after a sale that some of your employees may use that as an excuse or opportunity to look for another job and leave. On the other hand, it’s typically for employees to be highly concerned about keeping their jobs when they hear you’ve sold and a new owner is taking over.
The reality in the vast majority of cases is that the buyer doesn’t want to lose anyone and the employees don’t want to go anywhere. So how do you make everyone comfortable? In some cases buyers might ask for you to have your staff sign employment agreements prior to or after closing, they might ask that you agree to temporarily assume the duties of any key employee that leaves the business after closing, or they might even ask you to agree to assist with identifying and hiring replacements for any employees that leave the business within a certain time period after closing. You know your staff better than anyone, so you just need to have a plan to deal with any retention issues you think might occur.
What all of this post-closing discussion really boils down to is you taking a thorough and honest look at your organization and identifying where the true transitional risks are for a buyer. And once you know where those potential risks are, being willing to assist the new owner of your company for an adequate period of time after the sale to mitigate those risks and help ensure they are set on a path to successfully taking over your company.
If you have questions like these and what to discuss how the different answers impact the value of your business, please reach out to us and we’ll be happy to help. As always, one of the first steps in this process is to have us provide you with a no cost, no obligation business valuation.