Tips for Transitioning to a New Owner
1. Treat it as a Process
While selling a business or buying a business is an event, the transition is more of a process. It takes time to transfer employee loyalty, customer, and supplier relationships. Involving the previous owner in this transition can help build trust between the new owner and key relationships. The legal documents should clearly state this transition period. Be patient, there is much to learn when acquiring a new business.
2. Document All Information
Writing everything down is important to help the new owner easily catch up to speed. All processes, contacts, and operations of the company should be easily accessible. Here is a brief list of pertinent information necessary for day-to-day operations:
- All codes and passwords
- Client list
- Supplier and distributor lists
- Keys to building, vehicles, and cabinets
- Equipment operating manuals
- Contact information
A prospective buyer will want to see documentation of processes and key information. Building out a system for every process can help your team and the new acquirer keep things running.
3. Determine Areas of Focus
Using the business valuation obtained during the buying or selling process, a business owner can determine the areas they wish to focus on. A business valuation identifies the strengths and weaknesses of the business as well as how it compares to similar businesses. A valuation report contains vital information that if applied can help grow the value of the business.
4. Agree on a Transition Date
Determine a firm date for the transition of the business owner. In the formal transaction agreement, the previous business owner may be asked to stay on with the company for a certain period. A firm effective date is important for tax and legal purposes. As such, there should be extreme clarity on who owns the business on specific dates. A lack of clarity can cause issues with the IRS, insurance, and other legal matters.
It is recommended to set the effective date as the last day of the month. This makes it easier to close monthly books and cleanly wrap things up. However, this is not always an option. No matter the date you choose, work with your accountant to manage all the details.
5. Communicate Openly and Frequently
Change causes stress for most individuals. So, it is important to keep your team and customers informed throughout the process. It is best to communicate early, openly, and frequently. This can help ease concerns and address questions. A face-to-face approach is often recommended for employees and key customers.
If you are a new owner, be sure to meet all your new team and let them know how much you appreciate the job they are doing. The more communication you have and the more information you offer, the quicker you can earn the trust and loyalty of your team and customers.
6. Involve the Previous Owner
In most transactions, the seller is asked to stay on for a brief period. This transition period can help the new owner take the reins. It is also helpful for the previous owner to be available to answer any questions that may arise. The terms of the agreement are usually negotiated in the purchase and sale agreement. The most important part is to make sure the division of responsibilities is very clear. Doing so can help avoid duplicated effort and conflict.
If the seller finances part of the business purchase through seller financing, the seller has a vested interest in the success of the transition. In this case, the seller may take on an advisory role for an extended period. However long the time is, take advantage of the seller’s knowledge, skills, and expertise.
Executing a smooth transition can make a world of difference for the seller, the new owner, and the business. While a rocky transition can be costly, stressful, and burn relationships. Not to mention, it makes it difficult for the seller to make a smooth exit and the new owner to confidently take over.
Peak Business Valuation helps small business owners looking to sell their business and individuals looking to buy a business. Through a business valuation, you can understand the value of the company and how to increase it. Questions are always welcome! Please reach out via email or by scheduling your free consultation below!Schedule Your Free Consultation Today!