Selling a Business: Planning the Transition
The sale of a business involves more than one transition. The first, of course, is the transition from you to the new owners. This transition involves quite a number of interested parties including your employees, your clients and customers, your vendors and suppliers, and, in many cases, your community. The second is the transition you make personally, from business owner to just another duffer on the golf course. This post focuses on the transition of the business. If you are considering selling a business, consider the points made below carefully.
Transitioning a business from one ownership group to another takes planning and thought. Who will take on the responsibilities of the departing owners? Are those responsibilities even identified an spelled out? How will the financial transition work? What about existing employees? Can they run the show? Can any existing employees be groomed to run the show?
Who’s On First?
That riotous Abbott and Costello skit may not be entirely appropriate but there is a sequence of steps a business owner must take to prepare a business for sale and the ultimate transition of that business to new owners. The short version of considerations should start something like this.
- Establish a transition team: If your business has a couple of layers of management, members of your transition team would include some in-house personnel as well as some outside advisors. This team does not need to be too large because it can become unwieldy, but a couple of top managers as well as some outside advisors such as the company’s outside counsel and accountant, as well as a professional business broker/advisor, should be ideal. If your business is smaller, recognize that the buyers, whose anxiety you want to try to keep to a minimum, will likely want to keep your key employees happy and in the fold. That strongly suggests that one of two of those employees be part of the transition process. You would still be wise to include an experienced business broker to help guide the transition as such a professional will have been through this process many times.
- Identifying the outcome: What is the ultimate objective? Most basically, it is to get the business sold. But ideally, it is to do so with the least amount of disruption to the business itself and to everyone involved. Understanding the goal, end point and the process will make the establishment of guideposts and a timeline possible. In turn, that will make it possible to get everyone on the same page and pulling in the same direction.
- Decision making: This is the big one. Who’s going make decisions during the transition period and how and on what schedule is that responsibility to transfer? It’s crucial to transfer decision-making on an established schedule and have clarity around who will do what when.
- Have accountability: Who’s going to be responsible for what steps, actions and phases of the transition period? Once you’ve established the outcome and goals, having a timeline with responsibilities attached is very important in the communications to stakeholders outside the transition team. Your employees, clients, customers, vendors and any other stakeholders need to be kept in the loop so they understand the process and to avoid unnecessary fear and worry.
If you were thinking that selling a business was a relatively uncomplicated and quick process, at this point you’re probably starting to realize that it can be somewhat complex and, more importantly, requires significant planning. Even if your business is a small local bakery, boutique hotel, specialty cheese maker, independent real estate business or any other small business, this type of transition planning is extremely important to the achieving the ultimate goal – the sale of the business – as well as to the continuing success of the business after you’ve gone on to the next stage of your life.
But That’s Not All
Owners who are selling and want to ensure a smooth transition also need to consider the following:
- Training of the new owners: No matter what your business is or how simple it seems to you, some training for the new owners is almost certain to be involved. Even if your business is acquired by a larger company in a strategic acquisition, though the buyer is likely to want to keep senior management in place, it will also want it’s own team to be trained in how your business operates.
- Staffing Considerations: The new owners are likely to have a strategy to grow the business and this strategy may require new staff, something that may rile some of your long-time employees. You want the buyer to succeed, of course, but all parties should recognize the importance of keeping existing employees enthused about their jobs, to the extent possible.
- Financial handover: Bank accounts, credit lines, leases, payables and receivables, company-managed retirement plans and all other financial aspects of the business’ operation have to be transitioned to the new owners. This, in particular, can be fairly complex and needs to be carefully timed and planned.
- Near term developments: Upcoming issues that the new owners need to be aware of and understand.
- Existing employees: This is a big one. Selling a business impacts a lot of people and the owner needs to understand that while they’re leaving, their employees are left behind. This can be stressful – for both you, the seller, and your employees. Your employees have most likely been with you for a long time. You know them personally. You know their spouses and children, their hopes and dreams. For their part, they’ve worked for you, followed your lead, trusted that you knew what you were doing and stood shoulder to shoulder in support. This is no small thing, my friends; no small thing at all.
I once received a card from my employees that went something like this.
Why did the boss cross the road?
No one immediately knew why the boss crossed the road but we all had a guess. Some thought he saw an opportunity. Some thought he saw some danger on the side we were on. Some thought he might be on to some new idea. Some, of course, thought he had lost his mind.
But we all agreed that the boss must have had a good reason for crossing that road, even if we didn’t know what it was at the time. And we all followed him across that road knowing that, whatever it was, he was on to something good for his business, the company we worked for.
So, don’t worry, Boss. We’re right behind you!
When I sold that business, those employees were among my biggest concerns. Yours will be among yours.
A transition plan is part of an overall exit strategy. If you think you might sell in the next three to five years, now is the time to put one together. We put together a check list for doing just that and it’s yours FREE. Simply tell me where to send it.
The Business’ Future
New owners will have their own ways of doing things and some – or more than some – of the processes and systems that you’ve put in place may change after the handover. But too much change too quickly can cause a thriving business to stumble. Having a transition plan in place will, in many cases, allow the seller to exert some influence over the business’ operation in the immediate aftermath of the sale. A sound transition plan will include an argument for the buyers keeping the pace in the early stages of their ownership.
After many years of building your business, my guess would be that you’d want it to continue to thrive and grow. In order for that to happen, how the transition period is handled is critical. The business depends on more than you. Wise buyers will want to maintain your productive workforce, the business’ reputation with its clients and customers as well as in the community. Planning the transition so that business continuity is maintained and everyone involved gets behind the efforts will go a long way toward keeping the business on steady ground while new owners take over,
If you have any questions, comments or feedback on this topic – or any topic related to business – I want to hear from you. For example, what is your biggest concern about the thought or process of selling your business? Let me know by putting them in the Comments box below. Start the conversation and I’ll get back to you with answers or my own comments. If I get enough on one topic, I’ll address them in a future post or podcast.
I’ll be back with you again next Monday. In the meantime, I hope you have a profitable week!