4 tips to ensure a smooth transition when selling your business
Read time: 3 minutes
Congratulations—you’ve sold your business. But don’t get your golf bag or surfboard out just yet. You’re not quite ready to move on.
There’s still some work to do to ensure a smooth transition. You have to tell employees and partners, hand over the reins of the business and help the new owners get up to speed. Managing all this can help your company succeed after you’re gone and improve the odds you will be paid back any vendor financing you supplied.
“You’re probably not leaving right after the sale,” says Matthew Kellow, Vice President, in BDC’s Growth & Transition Capital, which finances business transitions.
“You should anticipate being asked to stay involved by the buyer to make sure the transition goes smoothly. Vendors are rarely prepared for this process.”
Follow these four tips to ensure a good transition.
1. Negotiate a favourable sale
The seeds of a smooth transition are planted before the transaction. The process starts with negotiating a clear, detailed sale agreement and finding the right buyer. The ideal buyer is someone you can work well with and who shares your vision for the business.
“If there’s good harmony with the buyer, things tend to work much better,” Kellow says. “The buyer may see significant value in your knowledge of the business, its customers and employees, and will likely seek a mutually beneficial arrangement to capture this value.”
2. Plan the transition with the buyer
The buyer can learn only so much during due diligence. A well thought-out transition plan will assist them and their financial partners (lenders and equity investors alike) with the transaction. The more closely you work with them to plan the hand-over, the fewer problems there will likely be.
Consult your lawyer, accountant and other advisors on what information you should provide and when. “The buyer will want a lot of input in how the transition happens,” Kellow says. “A lot of communication has to be mapped out. It’s a risky time for the buyer. A sale can create a lot of disruption in the business.”
3. Communicate with employees and partners
Keep in mind the emotions and stresses that your employees will endure in a transition. Work with the buyer to plan how to reassure them. Good communication is critical. You may also need to offer incentives, such as retention bonuses and stock options.
“From a buyer’s perspective, your employees represent a lot of the value of the business,” Kellow says. “They may hold key corporate information in their minds. Your employees need time to adjust. You don’t want to lose the top sales guy right after you announce the sale. You’re dealing with a living, breathing business.”
Also figure out with the buyer how you will tell customers, suppliers and financial partners.
4. Be prepared to let go
The new owner may want you to have a formal relationship with the business after the sale, such as a board or consulting position. That’s especially common if you are selling to an individual or financial buyer such as a private equity firm. If you are retaining minority ownership and/or providing financing to the buyer, will want to understand what voice you will have for key decisions and what role you’ll have in the company after the sale closes.
At the same time, you should be prepared to let go. “The vendor is used to having all the power and often isn’t ready to relinquish that,” Kellow says. “Vendors should understand the expectations of them through the transition, to make the transaction a success and ensure their legacy continues.”