It is fairly common for a business owner to want to exit their business rapidly after completing a sale. Most owners are accustomed to being the boss and aren’t sure how they will feel after the new owner has stepped in to run the business, or they are simply ready to move on. However, one of the biggest buyer fears is that performance will decline after ownership is transferred because of the absence of the former owner's knowledge, experience, and relationships. For a business to be attractive, buyers will need to feel confident that there can be a smooth transition with little or no business interruption, and if problems do arise that they will be able to depend on the seller for help and advice to resolve the issues.
The length of time for training and transition will vary from one business to another, and the seller’s compensation for such will depend on the nature of the business and the structure of the sale. Generally, the less dependent that a business is on the owner’s knowledge and relationships, the shorter the training and transition period. Conversely, the more dependent a business is on an owner’s knowledge and relationships, the longer the training and transition period. For most business sales, Codiligent is able to negotiate a training and transition period of 2-4 weeks as part of the agreed upon sale price and structure, with promised seller availability for limited paid consulting hours for an additional 1-11 months. With businesses that have a high degree of dependence on the seller’s specialized knowledge or relationships, training and transition could last as long as 2-3 years.
With any sale, a business will attract more buyer interest if an owner is willing to be available for a longer transition period. Accommodating a longer-than-typical transition period can be accomplished using an agreed upon employment contract or by making paid consulting hours available. While a buyer may not use consulting hours offered by a seller, the fact that they are available will lower a buyer’s perception of risk and provide greater confidence of success after the sale has closed.
If you are planning for a sale a few years in advance, you may want to ask yourself, “How dependent is the business on me? Are there important relationships that I have which may not transfer to a new owner? Do I have unique knowledge and skills that a buyer may not have? Are there things that I know that my employees don’t?” If the answer to any of these questions is “yes”, you may want to work on some changes to the business which could include:
- Recording your knowledge in written form showing step-by-step instructions on how you address particular issues;
- Training and educating employees to provide them with your knowledge;
- Increasing employee involvement with clients, vendors, and consultants to shift your personal relationships to the business.
Making these changes will help minimize the amount of post-sale training and transition and will create a greater sense that the business’ performance isn’t dependent on you, which will lower the perception of risk, increase marketability, and ultimately increase the price you may receive.