10 – Manage the Transition

Managing The Initial Transition Period

Length of Transition Period

The time dedicated to the transition depends on the type of business and on your needs. If the business is a simple operation, a transition period of several weeks may suffice. A more sophisticated operation may require several months, or even years. Once an introductory period has passed, much of the transition can be handled through email and phone conversations.

Ongoing Consulting

It’s common to include a set period for consultation post-close, in case you need help beyond the initial stages. For this additional period, the seller is offered an ongoing consulting agreement on an hourly fee basis.

Purpose of the Transition Period

These agreements are for training and consulting, not for the seller to perform routine work in the business. You will quickly alienate the seller if you ask them to perform routine operational tasks, as opposed to focusing on passing along their knowledge and helping ensure a smooth transition.

Design a Transition Plan

You and the seller should meet before closing to outline the specifics of the training and transition period. This allows you to discuss the transition process in detail to ensure a smooth, orderly turnover. Communication is paramount and it’s critical you both discuss your expectations so there are no surprises or confusion later on.

Suggested Agenda for Meeting Between the Buyer and Seller:

  • Operations during training: Who will run the business while the training is in progress? The day after closing, the buyer may not have the knowledge, skills, or experience to immediately begin operating the business. The parties should discuss who’s responsible for which activities to ensure a smooth hand-off.
  • Commitment to the transition process: The buyer should communicate to the seller that they are fully committed to begin operating the business from the first day. This includes wrapping up other obligations and preparing to take advantage of the seller’s knowledge by clearing their plate of as many responsibilities as possible before transition begins.
  • Training agenda: The buyer and seller will need to work together to create the training agenda. It should cover any questions that come up during due diligence since the buyer won’t know what the training should consist of because they’re not familiar with the business.
  • People involved in the training: Discuss who will execute the training, such as the owner, the owner’s spouse or family, or key employees.
  • Help beyond the initial transition period: The buyer should also discuss the seller’s availability if any questions arise after the initial transition period concludes. We recommend structuring any additional assistance on an hourly consulting basis at times that are convenient for the seller.

Written Transition Plan

You can begin creating a draft of the transition plan during the due diligence period. You will likely ask the seller dozens of questions regarding operations of the business during due diligence, and these questions can serve as the basis for the training agenda. Compose a comprehensive list of any important items, issues, or questions you develop about the business during the sale process that you think should be covered during the transition. This will lead to a more effective transition period and maximize the use of the time agreed to in the training agreement.

Put the Following Information in Writing:

  • A list of all topics to address in the transition period: Customer service, office work, accounting and bookkeeping, legal, employees (including hiring, onboarding, and training)
  • An agenda for procedures, tools, and skills the buyer must be trained in
  • A timeline for the process as a whole, as well as timelines for each step
  • Priorities for each item on the agenda
  • How the training will be performed, such as in writing or in person
  • Plans to video record highly technical or detailed processes for later access

Don’t Begin Training Before Closing

Beginning training early presents several risks. It’s likely employees and customers will find out about the sale before it’s publicly announced, which causes distrust. If they do, the business may suffer financial damages, such as lost employees or lost customers because the sale hasn’t been formally announced yet. Additionally, the seller must share sensitive information with you during the transition period that should only be shared after closing.

Specific Agreement

The purchase agreement should contain a clause specifying a “transition agreement” between the seller and the buyer. It should be highly specific regarding the length of the transition period, including how many hours and on what terms any training will be provided. This prevents any potential miscommunication between the parties.

Managing the Seller’s Expectation

Note: The following advice applies only if the seller has owned the business for a significant period of time and is likely to have an emotional attachment to it.

Some business owners experience second thoughts before the closing as they start to consider the personal implications of the sale of their business. They sometimes delay the sale or back out entirely. This may be due to anxiety at the thought of having to face major life changes after devoting so much time to their business.

Respect the Seller’s Emotional Journey

Most entrepreneurs are go-getters. They need something to do with their time, be it a hobby, a new job, a role in a charitable organization, or something that provides them a new sense of purpose. After being business owners for many years, they’re often initially relieved to retire. The problem with this scenario is that some don’t know how to “do less” or simply relax. Many owners – the same ones who were excited at the idea of retiring – may experience cold feet when a buyer makes an offer on their business. Once it’s sold, they may find their dream retirement doesn’t meet their expectations.

Help the Seller Find a New Focus for Their Energy

Luckily, there are ways to help calm the seller’s nerves. What happens after they sell needs to be planned just as carefully as the sale itself. You wouldn’t sell your home without knowing where you plan to live. The same principle applies here: Aiming to “be retired” is not enough. The seller needs to direct their energy toward a new passion.

Returning to Their Business

A year into retirement, and sometimes sooner, most entrepreneurs look for something else to do with their time. Many even return with a desire to play a role in their former business. This presents an ideal opportunity for you. Ask the seller what areas of the business they most enjoy working on, then align their interests with the activities that provide the most value to you.

Play to Their Interests

The seller’s experience and interests can provide enormous value to the business, such as recruiting, sales, marketing, or establishing key alliances. These are often difficult positions to recruit for, and the previous owner may be talented in these areas and willing to take them on. Sellers are often willing to work in these roles if the position is structured to meet their lifestyle needs. 

Flexibility is Key

Most retirees desire flexibility, and if you can offer this to the seller, you may develop a win-win situation in which you retain experienced talent at a reasonable cost, and where the seller retains a role that rewards them with more than just financial benefits. Structuring an arrangement like this can also assist in retaining key customers or employees. Loyal customers and key partners will feel more at home if they see the seller’s ongoing participation in the business.

Emotional and Financial Needs

The seller’s emotional needs are often just as important as their financial needs. Keep this in mind during the transaction and be prepared if the seller experiences periods of last-minute anxiety. Addressing these concerns will help ensure a smoother sale and garner more cooperation from the seller, both during the transition and after.