An experienced business broker will help an owner understand every step of the sale process – including what might be expected after closing. Of course, expectations vary based on the size and complexity of the business and on the buyer’s experience in the industry. Here are some requests a buyer might make from the seller.
In small companies, the owner might be very involved in the day-to-day operations, particularly if the business is technical. I’ve sold HVAC companies and auto body shops, for example, where the owner performed some of the installation and repair work. In these companies, the owner may be asked to stay on until the buyer gets their own license or acquires technical skills, or long enough to help hire the owner’s replacement.
In mid-sized companies (say $1 – 5 million), you’ll generally have a deep enough level of staff that the owner is less essential to everyday operations. But it’s very common to see a Purchase Agreement that includes a free training period for the new owner followed by a paid transition or consulting period for the seller.
These usually last less than six months, depending on how steep the learning curve is for the new owner. A good rule of thumb for estimating this period is to ask yourself “How long would it take to teach someone how to do what I do in the company?”
In deals with larger, more complex companies, professional buyers such as private equity firms often want the owner to stay engaged for a longer period, perhaps up to a year. It’s also common to include terms where the seller not only stays on for a period as an employee, but may also be asked to keep some of their shares in the company, ensuring they still have ‘skin in the game’ as a sign of good faith through the acquisition. This Is often referred to as “taking a second bite of the apple;” the seller helps the company grow, and when they sell their final shares, they’re selling at a higher value.
There are some ways a seller can make the transition process easier, no matter how long they stay on with the company. I arrange a series of calls between the seller and buyer to discuss important issues the buyer needs in order to prepare. I also ask the seller to prepare a checklist that helps the buyer create a transition plan.
Lenders require some issues to be taken care of before the sale can close. Insurance and workers comp plans must be in place. Leases on the building or equipment must be transferred to the new owner. In addition to those items, a buyer must be prepared to do business on day one. That means making sure there’s an operating account that will cover payroll and material purchases, employee credit card purchases if needed, and other operational costs and details.
In most cases, immediately after the closing, the seller will call an employee meeting to announce the sale and introduce the new owner. This is a critical event that can make or break a new owner’s first impression with his team. Doing it right requires planning and empathy; reassuring staff that they will keep their jobs and that the transition will be smooth with minimal disruption and change. The seller plays a big role in the first weeks after the sale, making sure the new owner is getting up to speed quickly and that the workers remain focused and productive.
After the sale, the seller may also make introductions and help forge relationships between the new owner, key customers, and vendors. Owners are usually happy to do this since it helps ensure that the company runs smoothly and continues to be profitable. Part of the seller’s responsibility is to make sure their legacy remains strong, and the company they worked so hard to build continues to thrive.
If you’re exploring the options to sell your company, the first step is to ask us for a complimentary opinion of value.