Welcome back to Becoming a Better Business Broker in 30 Days!
This concise series title describes exactly what we hope you get out it - becoming a broker that can close more deals with less work.
If you missed yesterday, check out Negotiation Tactics for Business Brokers.
Today we're exploring a topic that never ruffles the feathers of Sellers (we wish 😒) and that's Managing Post-Sale Transitions.
While this topic is a bit of a minefield, in this article you will learn how to 'coach' your client before the listing agreement is signed, how to negotiate transition terms with Buyers, and the best strategies for post-handoff success.
We got a lot to cover, so let's get right into it.
Phase 1: Coaching Your Client Before the Listing Agreement
This may come as a surprise, but in your first conversation with Sellers, you can start coaching them on a transition plan.
Before you say, 'No way, Jose' let us explain. The reason you want to start talking about training & transition during your first call with Sellers is because it is the keystone to your deal marketing strategy. How is this the case? Let's run through a few examples:
- The seller doesn't want to train a buyer - for not even 1 minute
- We're not going to lie to you, this one is tough. Start by using the tactics in our How To Filter Sell-Side Leads to determine if this client is a lost cause. Also, don't write these clients off right away.
- Many assume that no training is included in the purchase price because they didn't receive any training when they started the business (the logic is there). Start by educating them that some level of training is expected in a transaction, we often state the number of weeks (say 2 weeks to as much as 12 weeks) or a specific number of hours. This guidance will depend on the complexity of the business and the importance of the owner's role.
- The owner's role is difficult to replace
- Is your Seller client the Creative Director of its marketing agency? If the answer is yes, this is a potential deal blocker - you get ahead of this problem by getting the Seller to put on a Buyer's hat proactively. Not only (in most cases) they will recognize, "Yeah I am hard to replace" this epiphany helps boost their ego - before you deliver the not-so-great news - they might end up working for a few more years. Yes, either in the form of a multi-year earn-out or by rolling equity in the transaction.
- If you can confirm with the Seller that they will continue working post-transaction (important: before you list on the market) your world of buyers will open up, making it easier to market the deal.
- The owner is open to staying on
- Don't you love a Golden Goose? We sure do. In the rare case that the owner wants to stay on post-acquisition (perhaps moving to a more skilled position rather than a management role) this will shape your acquisition strategy. For example, even a micro-business can sometimes sell to a strategy if the owner is willing to stay on. This is commonly referred to as an 'acqui-hire' in the M&A world.
- The current global labour market is tight for talent, so expect a lot more of these 'acqui-hires' in the short term.
Phase 2: Negotiating Transition Terms with Buyers
A successful transition is often down to the details in the negotiation phase. Here are some tips to negotiate terms that benefit both parties:
- Define the Transition Period: Clearly outline how long the seller will remain involved post-sale to assist with the transition. A few specifics:some text
- How much training is included in the purchase price? Define this in either hours or weeks.
- Is there an hourly limit per day (say 4 hours), per week? Are weekends fair game?
- Is any/all of the training in-person? Is part of the training in-person and then the remaining hours will be done as needed? When is the end date for the Seller being 'on call'?
- Outline Specific Responsibilities: Detail what the Seller is responsible for during the transition. This might include training the new owner, introducing them to key clients, or providing support for specific operational issues.
- Consider an Earn-Out or Rolling Equity: As mentioned above, if there are concerns about the future performance of the business, an earn-out agreement or rolling equity can align both parties' interests by tying part of the sale price to the business's post-transition performance.
Phase 3: Strategies to Ensure Post-Handoff Success
Once the deal is done, the real work begins. But not for us Business Brokers - we got paid, our job is done!
Just kidding, since your reputation is on the line, you want to make sure both Buyer and Seller have a successful hand-off. Here's how to ensure a successful handoff:
- Create a Detailed Transition Plan: Work with both parties to create a transition plan that outlines every step of the process, from training schedules to key meetings with clients and suppliers.
- Facilitate Open Communication: Encourage open lines of communication between the Buyer and Seller. Regular check-ins can help address any issues before they become problems. Hot take 🔥: we recommend that some basic training (such as site visits/tours) is completed before the completion date. Risky, we know, but the camaraderie that gets formed between a Buyer and Seller will lead to a much better post-hand-off transition - as they are already familiar with working with each other.
- Monitor the Transition: While it's not our job to continue helping the Buyer and Seller after the deal is done - don't disappear. Check in with both parties to ensure the transition is going smoothly and offer your assistance if needed. If you do a thorough job here your hours of hard work will get repaid in client testimonials and referrals - play the long game.
Conclusion: Navigating Post-Sale Waters
Managing post-sale transitions can feel like a fun game called, 'how to tip-toe a landmine'. But it doesn't have to be this way.
By preparing your client for what lies ahead, negotiating thoughtful transition terms, and actively supporting the handoff process, you can ensure a smooth transition that leaves both Buyer and Seller happy as clams (we had to Google if you can pluralize clam).
Remember, a successful transition is the final step in closing a deal that works for everyone involved. Ready for more articles? Cause we only have 21 days left! But we're not counting, no no, we're excited for tomorrow's edition, Navigating the Legal Landscape of a Deal.
We promise this one is more exciting than it sounds! Ask your lawyer friend (this one we won't plural), they will agree.
If you want to learn more about automating your business brokerage with DealBuilder, please visit our site or book a demo here.
