What Is the Seller's Role During the Transition Period When a Business Sells?
Whether you're talking about selling a construction company, acquiring a landscaping, hvac or plumbing business, merging with another construction business, or even retiring from being a business owner, the period when that decision is made until the process has been completed is known as the transition period. During the transition period, with the help of an advisory team, specific processes are carried out to ensure that everything runs smoothly once the sale, acquisition, or merger is completed.
If you are selling your business or company, you have to play a certain role during the transition period to make sure that the sale goes off without any significant roadblocks and that once the business is in the hands of the new ownership, it is successful and profitable.
Read ahead to understand the seller’s role during the transition period when a business sells, what benefits can be gained from an effective seller, and how long the seller should ideally stay with the business once it has been sold.
The Seller's Role During the Transition Period When a Business Sells
How big of a role a seller plays in the transition period after a business sale depends from sale to sale. The seller might play a very significant role and have a very strong presence throughout the process, or they may only act as a figurehead with very little practical involvement.
Usually, having the seller present throughout a business’ sale and transition period can be very advantageous and help smoothen and streamline the transition stage. It can often be a deciding factor that if the business will sell or not, it often depends that how much business is dependent on the seller, if there is a middle management team in place or if the seller is the only one who is the face of the business. Especially for a construction type business like HVAC, Plumbing, Electrical contracting, Landscaping etc. we often find that the seller is very hands on when it comes to estimating jobs, project management etc. This can often be a problem when the seller sells the business and wants to call it quits quickly. This often limits the buyer pool to only another construction company buying the business as they may have knowledge pool and people in place like estimators, project managers etc. to replace the outgoing seller. There are very often buyers like private equity groups, search funds, investment groups and financial buyers who are interested in purchasing the business but will only be able to purchase business if the outgoing seller is willing to stay for a long transition period.
If you are someone who is buying a business, it would be a good idea to make the most of the seller’s availability. During the transition period, it would be ideal if you gradually phase the seller out as you take on the ownership role. This means that once the sale has been agreed upon, the seller might still be with the business and can even continue to work for the business full time. Then, eventually, there can be a change in the roles assigned to the seller, and their responsibilities can slowly be lessened.
This gives you, as the buyer, an opportunity to observe the seller and how they have been running the business so far, as well as the opportunity to learn from them. It is important to note that just because the seller is selling their company, it should not be assumed that they were not good at their job and had not been doing well so far. There could be any number of reasons for selling that have nothing to do with a lack of competency on the seller’s part.
During the latter part of the transition period, the new owner of the business takes charge, but the seller may remain working with the business. Once the new owner has a proper grasp on making the important business decisions, the seller can move on to part-time work and eventually stop working with the business altogether.
An additional role the seller can take on is to remain available for occasional consultations even after the transition period has ended.
What to Keep in Mind During the Transition Period
While the transition period is going on and the seller is still available, there are certain things that should be done. The first of these things is thorough business planning. While a new buyer might enter the business sale with fresh ideas and a lot of plans on how they want to move forward with their newly acquired business, all of those plans might not be suitable.
Since the seller likely has plenty of experience running the business, their input on future business plans can be a priceless addition. The transition period is also an excellent time to test some of those plans out. It would be advised not to introduce all new sweeping changes, but certain plans can be implemented for short periods of time to understand how well they may work out. The seller’s experience can be a huge help and prevent new business plans from causing setbacks or creating big mistakes.
Another thing to keep in mind during the transition period is that this is the perfect time to work on opening up all effective channels of communication between the old management, the new management, the employees, and any other parties involved in the business. This process can be made much easier when the seller is still a part of the business.
To begin with, a buyer needs to have clear communication with their employees and take the time to assuage any fears the employees may have about the future of the business. It is important to boost the employee’s morale and clearly explain what will be expected from them under the new management.
Then, there should also be clear and effective communication with the vendors and suppliers to the business. And finally, there are the customers who need to be kept in the loop. The suppliers and customers should be assured that things will carry on smoothly even though the business’ ownership is changing hands.
If the previous seller of the business played a forefront role in all of the communication with employees, vendors, suppliers, and customers, it would be helpful to involve the seller in most of the communication during the transition period. Having a familiar face around during the transition can be reassuring for people involved with the business.
The Benefits That Can Be Gained from an Effective Seller During the Transition Period
The transition period, more often than not, sets the tone for how the business might fare once the sale has been completed and management has been entirely handed off. There can be a lot of uncertainties within a business while it is being sold, but if the transition period goes smoothly, then most of these uncertainties and fears can be dealt with.
Having the seller onboard and active during the transition period after a business sale offers many benefits. Let’s consider a few of them:
● As we have mentioned before, the seller can offer a lot of valuable insights and important perspectives for running the company that can be very beneficial for the new owner.
● The seller has a well-established relationship with the business’ employees, vendors, and customers and can reassure them that the business sale will not negatively impact them.
● The seller can help build employee morale by personally speaking to them once the transition period begins.
● The seller can continue to work with the business while the new owner settles in.
● The seller can remain a part of the business under an advisory role for the occasional meetings or consultations.
● The seller can offer their opinions on future business plans and share their long history of experience in the industry with the new owner.
● The seller can help direct the business’ growth since they will directly be benefiting from any previously agreed upon earn-out payments.
● The seller can inspire the new owner and management to carry on the business’ legacy and ensure its growth and success.
How Long Does the Seller Stay with The Business After It Has Been Sold?
Once official talks of buying a business have been put into place and the transition period has begun, the seller may stay with the business for a certain time. This is not usually a fixed period of time and can differ from one business sale to another. However, the period is typically agreed upon when other things are decided during the sale.
A regular shorter transition period after a business is sold may last between one to three months. A longer transition period could span anywhere from a couple of months to a year or even more. The seller may realistically stay on for any length of the transition period.
Sometimes, a seller may want to stay on with the business because they simply aren't ready or willing to stop working. Such a case could also be because the seller decided to sell the business while the market was expanding, and they could find a premium price. Once they sold the business, however, they wished to continue working while handing off administrative or managerial responsibilities. They can continue to draw an income and benefits from the business even after the transition period if they continue to work.
In another case, the seller may not desire to stay with the business once sale agreements have been signed. They may simply stick around for a fraction of the transition period before moving on to other business avenues or retiring.
However long the new owner would prefer the seller remain with the business can be decided and negotiated during the sale agreement. An employment contract can be drawn up for the seller, detailing their role in the business during and after the transition period.
N3 Business Advisors - Construction Industry Mergers & Acquisition Advisors
Selling a business is a very important decision for the seller and cannot be made lightly. From knowing your role in the business post-sale to finding the right person to sell the business to, there is a lot to think about. This is where a business advisor would step in to help.
If you need a business advisor to help you with your business sale, then N3 Business Advisors may be the perfect fit for you. We are a merger and acquisitions advisory firm located in Ontario, Canada. We work primarily with small and mid-market level businesses in the construction industry, such as HVAC companies, general contractors, landscaping companies, civil engineering firms, and more.
We are particularly experienced in business sales and have a team of lawyers, valuation specialists, insurance advisors, accountants, financial planners, financial analysts, realtors, and HR advisors to help you manage your business sale.
You can get in touch with N3 Business Advisors now to schedule a confidential consultation. Visit our website for more information, or call us at 647 967 4222. Our office is at 55 Village Centre Place, Suite 200, Mississauga, ON L4Z 1V9. You’re just one step away from getting together an experienced and trustworthy team to help you sell your business while achieving all of your desired outcomes and getting a premium valuation for your business.
The Bottom Line
Often, people will disregard the importance of the seller's role during the transition period following a business sale. As we have seen, the seller can play a significant role during the transition period, mainly as an advisory party to the business's new owner.
We have also discussed the various benefits that can be gained from having an effective seller present during a business’ transition period and how long a seller may generally stay on with the business once the sale has been agreed upon.
Overall, we can agree that the seller can be an invaluable asset to a business even after they have sold it.