Creating a Smooth Business Transition when You Sell Your Company

By Thursday Bram on 21 May 2010 (Updated 17 February 2011) 0 comments
Photo: mattjeacock

Selling your business may be your ultimate goal when you start the company, or it may be a decision you come to after years of running it. Either way, you want to be able to smoothly transition your business to a new owner when the time comes. That can take planning.

Stephen Antisdel started planning for the sale of his company, FurnitureFind.com, to a venture capital group three years before the actual sale — as soon as he recognized that a sale may be an option down the road. Antisdel says:

You can't wait for a sale to begin preparing for the transition. The training and organizational structures, documentation of procedures, legal issues all take time.

Teams: A Sticking Point

Dr. Donald Sweet is the principal of CEO Tactics, bringing 30 years of business experience to working with business owners. He's sold two businesses of his own in the past and bought a third, as well as helping many of his clients to buy or sell companies. Sweet points to the team running the business as the key factor in whether or not a new owner can transition in smoothly. Before you even start looking for a sales opportunity, you need to have your team working at their highest level. They need to be capable of keeping the business going whether or not you're in the office.

Not having a strong team can be a big problem even before you start the transition process. Selling a business can require a lot of focus, making it harder for an owner to handle the day-to-day operations of the business. If the owner doesn't have a team that can step up during this time, Sweet suggests that there can be big problems.

I've seen people let their businesses go into decline because they are spending too much time on selling it. This usually drives down the price while pointing out the team isn't that strong.

Many business owners can face some difficulties in delegating responsibility, which can lead to issues with the team handling the majority of tasks. It's an understandable problem: If you've built your business up from scratch, you're going to be personally invested at every level. However, take a look at how you would respond to the due diligence that any buyer will conduct to make sure that you'll be able to sell your business as is.

Sweet describes the warning signs a buyer will look for:

As part of the due diligence the buyer should have access to the management team (and other employees). Asking good questions about the business and gauging responses is a good way to detect those warning signs. Asking the owner to tell you about the team in some depth is another indicator. Owners who use 'I' and not 'we' can be telling too.

You can sit down with someone who isn't familiar with your business and talk through these questions. Try to do so naturally and record it. When you play it back, listen to the words you use to see if you can expect a problem.

Strengthening Your Team

Taking steps to strengthen your team, preferably long before you're even thinking about selling, will help your business grow in general. It's not just a necessity when you're trying to sell the company. Sweet says:

Before you can develop folks to take on more responsibility you need to make sure you have folks that can be developed. All people are good, don’t get me wrong. However, some are round pegs when you only have square holes. This can require some heavy lifting, especially if the folks have been with the organization for a while (or are a family member). Once you’re sure you’ve got a good solid management team, giving them more responsibility and training to develop them is key. We’re talking a couple of years, not a couple of months...Team development is very much a process. Certainly it all starts with the boss. He or she needs to understand and buy into the program. If they won’t let go the process doesn’t stand much chance of working.

Creating a system that lets someone step into your shoes can be crucial. Simply delegating tasks can be a difficult process. Your team may not make the same decisions you would when faced with a particular issue. Antisdel took steps to provide his management team with guidelines for decision-making, as well as training his staff to be accountable and communicate clearly.

Your employees may quickly realize that you're planning a sale. How much to tell them can be a personal choice, but keeping your team comfortable in their jobs is a crucial issue. Antisdel's approach was complete transparency with his company:

I kept the management team (and the whole company, which at one point was 160 people) in the loop on where the company was at (financially and operationally), and where it was headed, so there were no big surprises as the company weathered some very challenging times (i.e., the dot-com crash). Daily company-wide emails, plus formal and informal meetings, with candor on whatever we were dealing with at the time helped us make the transition to new owners with minimal disruption.

Creating a Transition Plan

When you're ready to make the sale final, you'll want to work out a transition plan that will allow the new owners to take control. When Sweet sold his businesses, he and the buyers negotiated a transition plan that guaranteed a smooth hand-off:

We hammered out a fairly comprehensive transition plan with the buyer and implemented it together. They paid me to be available for a year after the purchase and help with any issues that came up. Most everything went smoothly, more stuff to tend to in the first three months than in the next nine.

Simply arranging to be available for any questions that come up after the new owner settles in can make a difference in the success of a sale. That help can take different forms, from consulting on a paid basis, to offering to talk on the phone with the buyer every couple of weeks.

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