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Should Sellers And Buyers Start The Training Before Or After Close Of Escrow?



Posted By: Joe Ranieri, Business Broker: LA, Orange Counties.   When should the training of the new buyer of the business actually begin? Before escrow, during escrow, or only after the keys of the business are handed over to the new owner of the business. Joe Ranieri (Orange County Business Broker - Restaurant Specialist at 714-292-5448) starts this Discussion.

Typically, as the close of escrow gets closer, the bond between the buyer and seller gets stronger. There becomes a point in the transaction when the due diligence is done, the checks with various government agencies is complete, and lease is being finalized, and so the buyer and seller begin to anticipate their new lives: one, selling the business and enjoying a short break, and the other being a business owner. With most restaurant sales, the standard amount of training period is 2 weeks or 80 hours.

Although, it seems like a good idea for the seller and buyer to begin training before the close of escrow, because (a) the seller wants to be out of that store as soon as possible, and (b) the buyer wants to learn as much as possible to successfully run their new endeavor - it's simply not a good idea. Many things can go wrong. It's possible the buyer is in the store on a slow business day, and gets nervous, and feels the average monthly gross sales have been misrepresented or feels overwhelmed running the store, and thinks it's simply not for them.

The longer the buyer and seller are together, the higher percentage of possibility a conflict of personalities could occur. It's possible that the seller introduces the new buyer to the employees, because at one point they will realize the store is being sold, especially if there is a liquor license and the posting has gone up in the window.

It s simply best to follow procedure and have training after escrow has closed, because the deal is never done until all the money is in escrow and final escrow papers have been signed.

Simple: it depends. It can be a very delicate balancing act that could be disastrous for a business seller. Heed all the advice in this thread; but, before making the decision to start training before the business changes hands, have a very frank and thorough discussion with your business broker and attorney. Every transaction is different, every buyer and seller is unique, and every business seller should recognize that he is not in this transaction alone -- it is always a strength to reach out to those with more experience and say "Help, I need your advice." I have seen more than a few deals "go south" because the seller, unbeknownst to me, has started the training process before the closing, in the wrong way, at the wrong time, for the wrong reasons.

Simple: it depends. It can be a very delicate balancing act that could be disastrous for a business seller. Heed all the advice in this thread; but, before making the decision to start training before the business changes hands, have a very frank and thorough discussion with your business broker and attorney. Every transaction is different, every buyer and seller is unique, and every business seller should recognize that he is not in this transaction alone -- it is always a strength to reach out to those with more experience and say "Help, I need your advice." I have seen more than a few deals "go south" because the seller, unbeknownst to me, has started the training process before the closing, in the wrong way, at the wrong time, for the wrong reasons.
Contributor: SF Bay Area Business Broker
I once had a deal in escrow and the buyer and seller wanted to begin training before closing, against my advice. The seller was leaving town and the buyer was anxious to learn how to run the business while the seller was still in the area in case he had any questions.

Unfortunately, during the training, a key piece of equipment broke down, and a portion of the business operations came to a halt. The seller then called his brother to come fix the machine, who fixed the matching fairly easily but then complained about how often he had to come out and fix this machine, "for free, since it was family" and the flood gates broker from there. Questions arised, how much in machine repair, did you not show on the P&L's that a new owner will have to spend to maintain equipment? How much is the replacement of this machine going to cost? We need to deduct the cost of this machine from the purchase price, or have it replaced before escrow closed, etc. The deal eventually fell through. The seller couldn't move now, because the business didn't sell so his family had to move without him.

The buyer missed out on a great business, that just had 4 or 5 hundred dollars in annual repairs, which was negligible compared to the annual net of the business.

I once had a deal in escrow and the buyer and seller wanted to begin training before closing, against my advice. The seller was leaving town and the buyer was anxious to learn how to run the business while the seller was still in the area in case he had any questions.

Unfortunately, during the training, a key piece of equipment broke down, and a portion of the business operations came to a halt. The seller then called his brother to come fix the machine, who fixed the matching fairly easily but then complained about how often he had to come out and fix this machine, "for free, since it was family" and the flood gates broker from there. Questions arised, how much in machine repair, did you not show on the P&L's that a new owner will have to spend to maintain equipment? How much is the replacement of this machine going to cost? We need to deduct the cost of this machine from the purchase price, or have it replaced before escrow closed, etc. The deal eventually fell through. The seller couldn't move now, because the business didn't sell so his family had to move without him.

The buyer missed out on a great business, that just had 4 or 5 hundred dollars in annual repairs, which was negligible compared to the annual net of the business.
I would have to say, it depends on the nature of the business and the personalities of the principals. I prefer to do training prior to closing, whenever possible. This gives the Buyer a better shot at maintaining continuity in the operation until the new owner is ready to implement their own personal improvements.
We have also been in situations where one party or the other, or both just don't seem to communicate. In this case, we provide as much operational preparation as possible without the Sellers help. Sourcing the info with the Buyer will open up research that will prove to be very valuable. Once the transaction is complete the contract terms will determine the Sellers obligation.

I would have to say, it depends on the nature of the business and the personalities of the principals. I prefer to do training prior to closing, whenever possible. This gives the Buyer a better shot at maintaining continuity in the operation until the new owner is ready to implement their own personal improvements.
We have also been in situations where one party or the other, or both just don't seem to communicate. In this case, we provide as much operational preparation as possible without the Sellers help. Sourcing the info with the Buyer will open up research that will prove to be very valuable. Once the transaction is complete the contract terms will determine the Sellers obligation.
Contributor: Broker/Consultant: Elderly Care Services
In the Elderly Care Home industry my suggestion is that yes, start the training as soon as possible.

Elderly Folks love and thrive on consistency, a familiar face, the same cup of coffee every morning and knowing with confidence that their Care Giver will always be available. As well, the Children or Guardians of the Elderly Residents want and need that consistency as well.

Last thing you want to see in a Care Home transfer is for the new business Owner to arrive to work on day one and not know where a Resident keeps her favorite coffee cup or who his or her Doctor is. So introduce the new business Owners as soon as possible, follow Title 22 regulations on when and how to send out notices and make communication a top priority.

In the Elderly Care Home industry my suggestion is that yes, start the training as soon as possible.

Elderly Folks love and thrive on consistency, a familiar face, the same cup of coffee every morning and knowing with confidence that their Care Giver will always be available. As well, the Children or Guardians of the Elderly Residents want and need that consistency as well.

Last thing you want to see in a Care Home transfer is for the new business Owner to arrive to work on day one and not know where a Resident keeps her favorite coffee cup or who his or her Doctor is. So introduce the new business Owners as soon as possible, follow Title 22 regulations on when and how to send out notices and make communication a top priority.

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