Discussions > Discussion Details

What Are Some Tips In Ensuring A Smooth Transition When Buying A Business?

Comments & Replies: 4 Views: 7831 Posted By: Joe Ranieri

Changing hands of business ownership can seem both exciting and daunting to all parties involved, but it's important that a smooth transition occurs to maintain or achieve success of the business. Here are some tips I recommend ensuring things go smoothly when buying a California small business.

Topics: Buying A Business Tags: buying a business, escrow bulk sales

Contributor: Joe Ranieri, Business Broker: LA, Orange Counties

Changing hands of ownership can seem both exciting and daunting to all parties involved, but it's important that a smooth transition occurs to maintain or achieve success of the business. Here are some tips I recommend ensuring things go smoothly:

1. No major changes: I specialize in bars and restaurants, although I sell all types of businesses, but a major piece of advice I would give to any new owner would be to make no large changes to the business. A new owner should make no large staffing changes, price adjustments, major renovations, because this could hurt foot traffic that the previous owner has established. Customers are fickle, and many come to a business based on habit, and when they sense too much change, they'll often stop coming, and once a customer leaves, they are difficult to get back.

2. Maintain high employee morale: Point number two plays into point number one, no major changes, but it's so important, that it bares repeating. Many customers have developed a relationship with the employees that have been solidified long before the business was listed and changed hands, so it's extremely important that employees feel secure in their jobs and are productive, because many times, if not most, they know more about how the business runs better than the new owner, and can be a major asset to ensuring success.

3. Strong training period: Knowing the ins and outs of a new business can be overwhelming, and many times an old owner might have "seniorities" and want to be on their way, but it's imperative that the new owner is properly trained. The old owner should stay on after the close of escrow for a minimum of two weeks or 80 hours, and introduce the new owner to customers, so they know that the business is in good hands. If the owner has carried a note, they may want to stay on longer, possibly as an employee, if they can, to make sure the business succeeds, because future loan payments depend on the business being a success.

4. Meet with vendors: A new owner should familiarize themselves with vendors and establish a relationship with them. Having a good working relationship with vendors is important and in a way they, with their timely arrivals and flexibility, help a business owner succeed. During the due diligence period, a new owner should see a paper trail of who the current owner does business with and continue to use their reps and vendors to maintain quality and consistency.

Unless the business is a total disaster, and a new owner creates a major shake-up, but then there really is no transition because it's an asset sale, and total change occurs, but other than that, a major theme that I would recommend to any new owner is: keep things the same, at least, at first. Make small changes, nothing major. There are other things that play into a smooth transition, and I encourage others on this BizBen Discussion Post to post their thoughts and ideas.

Contributor: Christina Lazuric: Business Broker - Orange County

All good points Joe. In addition I would say that, although different brokers have different styles, my way to handle the transfer of the business regarding employees is to not say anything to anyone until the deal is close to closing. Once it's close to the end I suggest holding a mandatory staff meeting for all the employees, thanking them for their service and introducing them to the new buyer right there and then. This gives the buyer the a chance to introduce him/her self right away before they get any strange ideas in their head about the new buyer.

Buyers have to sympathize with how the employees must feel when they get a new boss. They have no idea what is going to change and if they still even have a job after the transition. The best thing you can do as the new owner is to assure them that their positions are secure and there service is valued. The first pep talk is crucial in setting the tone for who you are and what the new regime will look like. It's your opportunity to let them see that you are going to be investing in growing the business and they're assistance will be more important than ever. Also, growing the company could create opportunities for advancement that haven't been there before. Now instead of dreading the new ownership they are excited at the new possibilities.

Contributor: Ralph Santos, Broker Specialist, Health Care

I honestly believe that the transition phase begins when the Seller and the Buyer meet for the very first time. What do I mean? It is all about chemistry. It is like a date that will hopefully lead to a second and third date and hopefully more dates. During this romantic or honeymoon phase, the two parties get to one another and both sides learn how to agree to disagree and all of the other nuances that most relationship have. In my opinion this one to one personal and yes professional relationship is the key to a smooth sale and thereby a smooth transition. One of my many metaphors to both my Sellers and to my Buyers is the metaphor of a marriage. I tell them that I would ideally like them to stay "married" for at least a year or so after the sale is consummated, pun intended. Here is my rationale, things are certain to arise after the sale is made. A letter from the Franchise Tax Board, a call from the city regarding the business license, a referral source who is confused as to the ownership change and so on. To ensure a smooth transition, the best formula is ensuring that both parties realize at least two things. On the seller's side, that the business sale should ideally lead to a prosperous venture for the buyer and to ensure this goodwill the seller should be as understanding and supportive as possible. It is all about karma! On the buyer's side, purchasing this new business comes with it a lot of unknowns and a certain level of risk. The buyer needs to understand that they need the seller to be there to help with the learning curve. I do understand that the transition will entail a lot of logistics as stated in Joe Ranieri's and in Christina Lazuric's comments, but again, in my opinion, the transition will flow a lot easier with everyone on board to include a competent agent leading the way.

Contributor: Timothy Cunha JD: Business Broker, SF Bay Area

One factor business sellers should consider is that business buyers are often counseled by their lawyer, their CPA, their financial advisor, or their "Uncle Louie" that the seller should have some "skin in the game"; and even if the buyer doesn't need it, that the seller provide 10% to 20% seller financing to be paid in a year or two after the closing, or monthly over that time. The seller who agrees to that will generally get a higher price for the business which could even make the seller-financed portion a "wash"; but, the seller will have a vested interest in the buyer being successful and the buyer will be more comfortable with the deal.

Helpful Resources To Assist In Selling And Buying California Businesses

Helen Yoo, New Century Escrow - Escrow Services In Southern California

New Century Escrow, Inc. is a fully licensed & bonded independent escrow company. Over 20 years combined experience in handling bulk escrow transactions. Multi-lingual staff that speaks your language, including Korean, Chinese, Vietnamese. Call Helen Yoo direct at 626-890-1151.

William F. Ziprick, Attorney: Legal Services For Buyers And Sellers

Through creative problem solving, attention to detail, accessibility, & understanding that unnecessary delay is often a deal killer, I work closely with my clients and other professionals to consistently achieve a high rate of closings. Office: 909-255-8353, Cell: 509-951-7230.

Diane Boudreau-Tschetter: Escrow & Bulk Sale Services - CA

California Business Escrow, Inc. is a full service independent escrow company serving all of California and has expertise in a wide range of escrows. Our team prides itself on providing an exceptional escrow experience. For more info phone Diane Boudreau-Tschetter at 888-383-3331 or 209-838-1100.

Shalonda Chappel: Escrow & Bulk Sale Services - Southern California

Escrow services to brokers/agents, sellers, & buyers. Established 43 years. Extraordinary service. Experienced with handling difficult transactions. One stop for all your escrow needs: Bulk sales, lien searches, UCC searches, liquor license transfers, publishing & recording services. 951-808-3972.

Jim Thomas: Broker Specialist, Consultant - Fitness & Gym Industry

Jim Thomas is the well-known founder and president of Fitness Management USA, Inc., a management consulting and brokerage firm specializing in the fitness, health club and sports industry. He has over 25 years of experience owning, operating and managing clubs of all sizes.

Larry Larsen: Laundry Consulting, Brokerage, Insurance

I have over forty years of experience in the sales, ownership, management, and construction of coin laundries. He is a licensed broker active in the sale of coin laundries, a licensed insurance agent specializing in coin laundry insurance. Phone me at 714-630-9274 or 714-630-Wash.

Chuck Post: Laundry Buyer Representation, Consulting, Due Diligence

32 years experience in the laundry industry, specializing in assisting laundry buyers with buying or starting up, re-tooling, laundries in Southern CA. Laundry buyer representation, consulting, due-diligence, lease negotiations, laundry valuations. Call 619-227-5711 (Cell).

Rick Carlson, Business Broker - Southern California

You Will Never Feel Lost In The Shuffle. Many Brokers Simply Send Out An NDA And That's The End Of Communication. All Buyers Receive A Personal Meeting With An Ace Acquisition Specialist So They Can Recommend The Perfect Business For You. Phone Rick direct at 800-985-4939.

Related Articles, Events, Blog Posts, Discussions, Videos, Interviews

Purchase A Small Business With Limited Or No Cash: Financing Tips For Buyers

Purchasing a business with no money down can be difficult, but not impossible. Financing a business purchase or down payment can often be accomplished with these strategies offered from Peter Siegel, MBA (Business Purchase Financing Expert, ProBuy & ProSell Program Advisor with BizBen) in this post.

Due Diligence Checklist: 10 Key Items To Investigate When Buying Businesses

Buying a California small business involves reviewing due diligence checklists so buyers can learn enough to determine whether to proceed with a deal. Here's a due diligence checklist. Peter Siegel, MBA (BizBen ProBuy Advisor & Business Purchase Financing Expert) at 925-785-3118 shares his views.

BizBen Podcast & Webinar: Business Purchase Financing And SBA Loan Options

Ever wonder what is involved in obtaining business purchase financing to buy a business or franchise? Peter Siegel, MBA who has over 25 years advising on all types of financing for business buyers in this BizBen Podcast & Webinar - SBA loans, Non-SBA Financing, Alternative Financing Sources.

Thinking About Selling A Small Business? Know These 8 Factors That Matter

The likelihood of selling a business is often determined by external factors in the marketplace. Here are eight influences on how easy, or difficult it might be when selling a small California business. Peter Siegel at 925-785-3118 (BizBen ProSell Program) explains these factors for owner/sellers.

Broker Explains Allocation Of The Purchase Price When Selling A Business

There are a handful of key asset categories in allocating or breaking down the purchase price allocation of a California business sale. Allocation is required to complete the transaction. In this blog post Lee Petsas (Orange County Business Broker) at 714-363-0440 covers asset allocation classes.

Attorney Specialist Shares Escrow Instruction Tips When Buying A Business

Once you have successfully negotiated the Asset Purchase Agreement ("APA") for your acquisition it's natural to relax a little and let your guard down. Attorney Specialist Mark Chatow discusses what business buyers should look out for when opening escrow and getting escrow instruction in place.

Business Purchase Financing Help - Expert Tips For Faster SBA Loan Approvals

Business purchase financing advisor Peter Siegel, MBA shares his views on SBA loan financing. He explains the nuances of the SBA loan process when considering business purchase financing or getting pre-qualified. Reach Peter Siegel, MBA direct at 925-785-3118 regarding SBA & Non SBA Loan Financing.

Business Purchase Financing Expert Peter Siegel - Tips On Proving Cash Flow

What are the actual "provable" adjusted net earnings (cash flow) of a small to mid-sized business being purchased? Buyers need to look carefully at all financial info for the "real" adjusted net income/cash flow. Peter Siegel, MBA (BizBen ProBuy & ProSell Lead Facilitator) at 925-785-3118 explains.