Manage the Transition
The training period helps ensure a smooth transition. You and the seller should meet before the closing to outline the specifics of the training and transition period. Communication is paramount. It’s critical that you each discuss your expectations so there are no surprises down the road.
We have heard stories in which a buyer continued to work at their job after the closing, expecting the seller to continue operating the business during the training period, even though they had no intention of doing so. Meeting with the seller can prevent confusion such as this.
Key Players During Training Period
Every purchase agreement is different, and the training agreement is no exception. Each buyer has a different skill set and experience level, which factors into the training agreement. The training period is a good time to build relationships with key employees in the business. We have found that the best training agreements are fluid — it’s difficult to define a training agreement in great detail prior to beginning your training.
Length of Training Period
The time dedicated to the training period is dependent on the type of business and on your needs. If the business is a simple operation, several weeks of training time may suffice. However, a more sophisticated operation may require several months, or even years, of training. Once an introductory period has passed, much of the training can be handled through email and phone conversations.
It’s common to include a set training period and offer the seller an ongoing consulting agreement on an hourly basis if you need help beyond the formal training period.
These agreements are for training and consulting, not for the seller to work in your new business. You will quickly alienate the seller if you ask them to perform routine tasks in the business as opposed to training you and passing along their knowledge.
Design a Transition Plan
Set a meeting with the seller before closing to discuss 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 that you both discuss your expectations so there are no surprises later on. Meeting with the seller can prevent confusion.
Suggested Agenda for Meeting Between the Buyer and the Seller:
- Who will run the business while the training is in progress? The day after the closing, the buyer may not have the knowledge, skills, and experience to immediately begin operating the business. The parties should discuss who is responsible for running the business during the training period 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. The buyer should fully wrap up their other obligations before the transition so they can dedicate their full attention to the business immediately upon closing. The buyer should be prepared to take advantage of the seller’s knowledge and should clear their plate of as many responsibilities as possible before the transition process begins.
- Training agenda: The buyer won’t know what the training should consist of because the buyer is not familiar with the business. The buyer will need to sit down with the seller to create a training agenda.
- People involved in the training: Discuss who will execute the training, such as the owner, the owner’s spouse or family, or employees. Employees can often assist with the process.
- Help beyond the formal training period: The buyer should also discuss the seller’s availability if any questions arise after the training period concludes. We recommend structuring this assistance on an hourly consulting basis, at times that are convenient for the seller. The training agreement prepared by Morgan & Westfield as part of our Closing Package includes standard language that addresses this.
Written Training Plan
You can begin creating a draft of the training plan during the due diligence period. You will likely ask the seller dozens of questions regarding operations of the business during due diligence, and the parties can collect these questions to serve as the basis for the training agenda.
Compose a well-thought-out 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 training period. This will lead to a more effective transition period and maximize the use of the time that was agreed to in the training agreement. It will also help to identify how long the training period needs to be.
Put the Following Information in Writing:
- A list of all topics to include in the training period: Customer service, office work, accounting and bookkeeping, legal, employees — including hiring, onboarding, and training
- An agenda for procedures, tools, skills, etc. that the buyer must be trained in
- A timeline for the process as a whole, as well as timelines for each step in the process
- Priorities for each item on the agenda
- How the training will be performed: In writing, in person, etc.
- Plans to video record highly technical or detailed processes for later access
The buyer should keep all training materials that the seller provides to assist during the transition period.
Don’t Begin Training Before Closing
Beginning training early presents several risks. It’s likely that employees and customers will find out about the sale. If they do, your business may suffer financial damages — lost employees, lost customers, etc. Additionally, the seller must share sensitive information with you during the training period that should only be shared after the closing.
The purchase agreement should contain a clause specifying a “training agreement” between the seller and the buyer. It should be highly specific regarding the length of the training, including specifying how many hours and on what terms the training will be provided. Not doing so can lead to post-sale disagreements, and buyers sometimes sue sellers for failure to properly train them.