Setting the Stage for Seamless Business Transition

New Ownership:  Setting the Stage for Seamless Business Transition

Changes Ahead signNovember 30, 2015
Written by:
Len Fulkerson, Business Broker
Indiana Business Advisors

There is no absolute right or wrong way for a business to transition from current to new ownership. However, both parties generally want this to take place smoothly for several reasons including; 1) the current owner has put a lot of “sweat equity” into the success of his/her business and wants it to continue to flourish, 2) the current owner has valued and trusted employees he/she hopes can continue with the new ownership, 3) both the current and new owner has a vested financial interest in the business being able to continue profitably to service debt,  and 4) the new owner purchased the business to provide income.

A key element of transition are the EMPLOYEES.  They are often the most valuable “asset” handed over to the new owner.  Much of the transition process needs to focus on this valuable component. Always remember, from an employee’s perspective the scariest thing about ownership transition is the unknown.  Much of what we will discuss here is focusing on taking the “unknown” out of the equation.

In addition, most businesses are built around a “team” of outside experts that facilitate the operation and growth of that business.  They include, in no particular order:

  • Banker
  • Accountant
  • Commercial business insurance agent
  • Attorney

Often, a payroll service provider and an IT professional may be included in this list.  Frequently, the new owner may want to utilize the services provided by the current owner’s “team” as they will be most familiar with the business.  The new owner will want to have his “team” in place as he starts his new business.

As the closing date draws closer and documents such as the Purchase Agreement, Asset Purchase Agreement, Lease Agreement, and other documents are being crafted and discussed with both party’s attorneys, the current and new owner will want to meet.  Topics of discussion should include:

  • After closing, when is the best time for the current owner to present the new owner to the staff? Generally, the sooner the better.
  • What should be communicated by the current owner and the new owner at this time to the staff (see below)?
  • Finally, how long will the current owner participate in the day-to-day workings of the business?

Significant thought should be put into the staff presentation by the current and new owners, for this will play a significant part in how the employees will respond to new ownership, and as we discussed previously, employees are an important part for the continued success of the business.

The new owner should be presented to the staff by the current owner. Here are some POSITIVE points for the current owner to emphasize:

  • You may want to briefly mention why you decided it was good time to provide new ownership for the business.
  • Discuss what characteristics you were looking for in a new owner, and indicate you were pleased to find that type of person to carry-on the business.
  • Mention that you expect very little to change to the business, and you are hopeful the new owner can make the current business even better.
  • Discuss how you will still be a part of the day-to-day operations for a time period.
  • Finally, thank the staff for helping you grow the business and say that you hope they will provide the same loyalty and dedicated work ethic to the new owner.

Upon being formally introduced by current owner, the new owner should emphasize:

  • In evaluating the business, you were very impressed by the accomplishments and feel very fortunate to be able to carry on the fine tradition.
  • You realize that the business could never have attained such success without a hard-working and capable staff.
  • For the near future, you expect very few changes to take place, but when change does take place in the future, it will be with the assistance and help of the staff and will only occur after concluding it will benefit its customers.
  • Emphasize that you will be learning the business over the next few weeks, and as such, will be looking for ideas and input from the staff on how things are being done and asking for opinions as to how perhaps they could be achieved better.
  • Finally, cast your vision to the staff…..your hopes and aspirations for what the business, with the “team” assembled there, can accomplish in the coming months and years.

In closing, there is no magical formula as to how transition should take place.  In the final analysis, it is up to the current and new owners to discuss and implement a plan that works for both parties.  With a positive and strong transition period, the business can continue to succeed and thrive, which is a win-win for both the prior and new owners.

Are you curious about how sellable your company is? Let’s get started with determining your Sellability Score via the questionnaire on our website. It takes about thirteen minutes and your responses are kept confidential. You can complete the questionnaire and find out your Sellability Score… click here.

To set up a free consultation for business valuation or to sell your business, call us.

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