How’s this for a training program?
Miriam’s deal to purchase a dry cleaning company specified that the seller, Mr. Chu, would be available to answer questions for two weeks following close of escrow. Since Miriam had experience from a job in a dry cleaning establishment, she knew how to operate the equipment and deal with customers. She just wanted a few pointers about things that might be specific to the company she was buying, and she wanted the seller to handle a few introductions to some of the clients and suppliers. She got more than she bargained for.
For months afterward, Mr. Chu still showed up every morning when Miriam opened the door, and lingered in the establishment till the middle of the afternoon.
"I felt sorry for him, because he had nothing else to do," she explained. And Miriam reports he was quite happy when she started giving him assignments, such as covering for her at the front counter while she ran errands.
This assistance, at no cost, for an extended period following close of escrow is not typically what a buyer can look forward to. More likely, the seller will strictly adhere to the terms of the training agreement and will be glad when it has run its course--meaning that he or she no longer has any responsibility to the buyer.
WHAT THE BUYER NEEDS
There is no standard for a training agreement in a business buy/sell contract. The duration and particulars covering this service provided to buyer by seller are as varied as the individual circumstances of each party’s situation. But as the purpose of the training program is to make sure the buyer is successful in the business--which is in the interests of both sides to the deal--the program should be designed to serve this end.
Many training pacts are based on the assumption that the buyer’s need for information and advice will be most critical right after the company changes hands. That need will most likely decline after a few weeks, as the buyer learns the business operating procedures and gets to know the employees, key vendors and major customers. Following this principal, training agreements usually call for the seller to spend time a few hours every week--maybe every day at first--with the buyer, until much of the basic information about running the business has been passed along. This initial period might require the seller to be on premises for a while.
A typical program will specify a period for the buyer to receive the most concentrated part of the training to start. That might be defined as a few days or several weeks, depending on the complexity of the business and the experience of the buyer.
The training period or periods that follow, calling for less seller involvement, should also be defined as to length and means of communication. The seller might, for example, be required to provide a “second phase” of training for a period of, for example, six weeks. Typically, the agreement will call for this part to be handled in phone or email conversations and there often is a limitation of, say two or three hours per week. The appropriate subjects for these interactions have to do with problems the buyer is encountering that were not discussed during the initial training period.
If the buyer wants the seller available to answer questions for up to six months or more after close, and if the seller is in accord with this, the fact should be spelled out in the training agreement.
IF THERE ARE PROBLEMS
While most sellers will object to being called on by the buyer to answer questions and to help solve problems after completion of the training program, the smart seller usually will cooperate with the request, at least for a few weeks. It may be annoying for a seller to continue getting calls, but it is easier and less costly than responding to a formal accusation--perhaps in the form of a lawsuit--claiming that the seller has not provided the buyer with the information and advice needed to be successful in the business. And the seller can always consult an attorney, if the buyer’s need continues well beyond the contractual period.
About the Author: Peter Siegel, MBA is the Founder & President of www.BizBen.com (7000+ California businesses for sale - 200 new listings added daily) & the Director of the BizBen Network - a California alliance of 16,000 business buyers, 4,000 small business owners, 1,800 brokers, agents, intermediaries, and 600 advisors/resource providers. Since 1994 BizBen.com and the BizBen Network have provided business buyers, owners, and intermediaries a clearinghouse of information on buying and selling California small to mid-sized businesses. For more information about BizBen.com, joining our Network or for a free consultation phone Peter Siegel direct at 925-785-3118.
Categories: Deal And Escrow Issues, How To Sell A Business, Selling A Business
Comments Regarding This Blog Post
These are great points. One thing I would recommend is that training takes place AFTER the close of escrow. A buyer may be tempted to want to start their training as escrow nears a close, and a seller may want to start early, because the faster they do training and escrow closes, the sooner they are out the door. The mistake that takes place on doing training BEFORE the close of escrow is that the buyer and seller could get in a fight or the buyer could become overwhelmed and want to cancel the deal or re-negotiate the price, because business was slow that week.