Dealing With The Seller

Having a reasonable and effective transition time when you buy a business can sometimes make the entire difference between whether or not the business remains successful after you take over.

Similarly, every seller should want the business to be turned over to a competent individual.

While there are no hard rules that dictate how long the former owner should stay, there are some guidelines.

The first thing a buyer must understand is that the seller cannot remain to perpetuity. If a buyer is too worried about taking over the company, and believes the seller must remain on board for an unusually long time, chances are the buyer is not suited to operate the company and may want to reconsider their decision altogether.

On the flip side, some of the training periods offered by sellers are completely ridiculous.

Unless you are acquiring a very basic business (i.e. a sandwich shop where the seller has very little impact day-to-day), a two week post closing training period is nonsense. I have always wondered why any seller or broker would remain inflexible on this point. If the seller truly wants to see the buyer succeed, if the business is what they have represented it to be, unless there is an extraordinary issue forcing them to be completely removed from the operation in short-order, and especially if there’s a seller note involved, then for goodness sake, offer an ample transitional period!

While two weeks may not be enough, it does not have to be for a year either; nor does the transitional period have to be free.

But it does have to provide the buyer with adequate time and instruction to get settled in and avoid being overwhelmed.

In my experience, it typically takes a buyer about three months to really get a grasp on the operations of a reasonably straight-forward business. This does not mean that every seller has to remain on board for three-months, but they may need to be available, if necessary.

A buyer must negotiate a transition period that will allow them to at least have the seller accessible during ownership change.

Keep in mind that employees, suppliers, customers, landlords and all other stakeholders in the deal will be apprehensive initially and it will take time for the buyer to alleviate any concerns they may have.

By the same token,, the buyer must understand that in some cases, having the old owner around can cause more harm than good. The buyer may not be perceived as the real boss while the old owner is still in the business.

Often times, it makes sense to have a short-term, full-time transition immediately after closing (i.e. one month), and then reduce the amount of time the seller is involved. Having the option of them being available either part-time, or with diminishing hours, or on an as-needed basis after the initial term, will likely provide you with some security and certainly make for a more effective changeover.

In some businesses where the seller is “the business”, or perceived as such, you may simply want to have them perform a diplomatic role long-term. In other words, they will be available for any key meetings, or to perform other tasks that will provide the impression that they are still involved.

In all of the businesses I have purchased, I had the seller tied to the business for anywhere from one month to two years. I must admit however, that they never made it the full term. I usually found that after a short period of time they were more of a hindrance than an asset. These were in companies where I took over the operations, and I certainly did not have the seller exit until I felt relatively comfortable assuming their role.

Equally important to the amount of time you negotiate for training, you must have a plan in place for what you need to cover and accomplish during the training period. As the buyer, it is incumbent upon you to map out a detailed training schedule. This should include of the questions you want them to answer during your training. Break it down to employees, customers, financials, sales, marketing, suppliers, competition, etc.

To make the point more candidly, your goal during the post-sale closing period is to conduct a form of training due diligence.

Having the option of a long transition is a good thing. But the quicker you get in, learn the company, establish mutual respect with all of the parties involved, and put your stamp on the company; the better off you will be down the road.


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