February 7, 2023

Eyesurgmi

The Joy Of Businnes

Business Buyers – How long should the seller stay on?

change of business ownership
Business Ownership Change

As a business buyer, keeping the seller onboard for a reasonable and effective transition period can be the difference between success and failure.  This helps get the business off to a smooth start under the new ownership.  There are of course potential issues that can arise depending upon how long the former owner stays on, but the question always comes up as to how long they should stay.

In general, there is no rule, however, our approach has always been to get them out as quickly as possible once their job is complete.

Job?  What exactly is their “job”?

First, it is to be certain that you are properly transitioned into the ownership position.  They should be formally walking you through everything they do each day, explaining how processes and procedures are set up, and how they handle specific situations.  These functions can range from showing you how to unlock the doors and handle the security system to introducing you to key accounts/customers or operating equipment, placing vendor orders, and all other key tasks depending on the nature of the business.

Throughout the buyer’s due diligence process, they (the buyer) should be addressing many of these issues before closing the deal. Buyers should also be compiling a list throughout the time they are reviewing and researching the business in regards to the daily operations to help avoid leaving these questions unanswered post close.

Clearly, the more complicated the business operations the longer a buyer may need the seller to stay on board for assistance.  However, if a buyer is truly uncomfortable about operating a business without the seller, they probably shouldn’t purchase the business.

In situations where there are key critical customer relationships, a buyer may want to consider keeping the seller onboard in a salesperson capacity to ease the transition and help provide a level of comfort to these critical key customers.

One critical thing that must take place immediately at the close of the sale is that the former owner has to be completely removed from all decision making authority as soon as you take over.  It may be hard for the former owner to adjust to this new role, however, the last thing you need as the new owner is employees, customers, or vendors continuing their relationship as though no sale transpired or you don’t exist.

We recommend setting a period that you fundamentally believe will allow you to complete the training you need from them.  In most cases, this is a few weeks.  Whatever it is, get a free initial period of training.  You should also create a buffer period for additional training if needed (preferably at no cost).  As an example, they agree to provide 3 weeks of full time assistance after the close and you have the right to retain them for an additional 3 weeks at an agreed upon compensation, but again, it would be your option.  Another good strategy would be to negotiate a descending period where it would be full-time for a couple of weeks, then part time for the remainder.

Once the sale is complete – ITS YOUR BUSINESS.  You are the boss, the chief, the final say, and the quicker you can pick the seller’s brain on all of the critical operational items and get them out of the way, the better off you’ll be to truly make this business your own.  After all, that is why you made the purchase, right?

Purchasing a new business can be scary, and a bit intimidating.  MCDA CCG, has assisted hundreds of clients and worked side by side on their business purchase.  Call us today to find out how we can assist you.  We provide services from helping you find a business to purchase, purchasing the business, financing the business, and assisting you all the way through as your business partner.  Call today for a free no-obligation discussion.