Developing a great training and transition program will help you move the needle in your business sale process.
When you’re unfamiliar with planning the sale of a business, developing a transition and training program may seem like a novel concept. But when you consider your goals as ownership for the sale process, the development of a sound transition plan makes a lot of sense. Building a business takes a lot of resources and commitment from a business owner, and for many, outside of a return, owners are seeking a legacy for their company. They want to sell their business to a good buyer that the business can transition with for the better. And this is where the transition program comes into play.
What is a Transition Plan in Business?
A simple definition for a transition plan is a process to manage the goals, priorities and strategies for the ownership transition of the business. A good transition plan fills the gaps between the completion of the confidential business sale process, the business owner taking over the company, rolling out the acquisition to employees, and the training, development & knowledge transfer planning for the owner to be successful in their new business ownership role.
The terms of the training and transition program will be outlined in the asset purchase agreement (APA), so new and prior ownership are operating from the same transition plan. The terms of the plan, such as the length of the transition period, can be negotiated between the buyer and the seller of the company. In some cases there may be external obligations that affect the transition plan. For example, if the buyer uses an SBA loan, the length of time a seller can stay with the company is limited to under a year. Or if the company is a franchise, the buyer will be required to complete the franchise’s training program.
What is the Purpose of a Transition Plan?
One of the biggest issues that can be overlooked in small business mergers and acquisitions transactions is the importance of proper transition planning. Without a good plan, clear cut goals, consideration for employees and staff, management of company culture, and the transfer of skills from the previous owner to the new ownership an acquisition can fail miserably. A poor transition program can be avoided and often starts prior to the sale of the company. This is why an owner preparing for the sale of their company, can make it more attractive to buyers by building strong transition strategies into their company to begin with.
So though it is the last step of the entire business sale process, development of the training and transition period should be considered carefully before, during, and after the sale. The following are a list of events that take place during the transition of an organization that should be included in the transition plan. This is not an all inclusive list, but should serve as a guide to understand the process.
Key Events During a Business Transition
- Previous and new ownership sharing the acquisition news with company employees together as a united front. This will help the organization understand that this is a positive transition.
- Plan for time to meet with key staff to assuage their fears, and answer questions about training and development of the company moving forward. Assure them that no immediate, hairy changes will be made.
- Knowledge and skill transfer from one business owner to the other. This is the new owners one big opportunity for learning the reins of the business and they should take advantage of it!
- Introduction of the new owner to key contacts such as vendors, suppliers, or big customers to ensure a smooth transition of the business.
- Review details of contracts significant to the company, so the importance of those details do not get lost in the ownership transition.
- Training of the new business owner on all processes of the business. Depending on the business industry and the buyer of the business, the training program may be more or less intensive.
How Do You Take Over a Business?
Legally speaking, to take over a business, business owners have to acquire the business through an asset purchase agreement or APA. But from a more qualitative standpoint there are opportunities for the ownership transition that business owners can take advantage of to increase their chances of successfully taking over a business. These can be especially important in a growth through acquisition situation.
- Start with a quality advisory team and be clear about your expectations for the business acquisition up front.
- Choose innovative operating strategies for the acquired business.
- Confirm there is strong leadership within the acquired company; this is crucial for the transition to be successful.
- Implement management incentives and employee retention programs.
- Link compensation structures to changes in cash flow for management staff.
- Push the pace of change and develop an urgency for success within the organization.
- Foster dynamic and highly communicative relationships across management personnel.
Following the Ownership Transition, What Happens After the Sale?
For the seller of the business, who recently transitioned out of their ownership role, considering their new goals and making time to flesh them out is key. This may include starting a new business venture, heading back to the corporate world or even taking a vacation or volunteering. Whatever the new goals are, It is important to make time to recover from and reflect on the ownership transition and identify a new purpose to get excited about. Remember that your business broker is your ally and can be a great advisor as you transition to your next steps.
For the business buyer, this is when your business ownership can get really exciting! During the transition period and employee training, it is important to stay the course of the company and not make too many changes too quickly. You risk losing employees in the process, or even worse, ruining what made your acquired company successful in the first place. But now that the transition plan has been completed, employees are on board with the new management, and some time has passed, business owners can start implementing changes and planning innovations to customize the company for their goals. Keeping in touch with your transactional advisor can be useful for buyers too as they search for new resources or local service providers.
For more information on the development of a successful training and transition plan, schedule a free consultation with a business broker or visit our website for more information.
Rachael Holstein has been the Marketing Manager for Transworld - Rocky Mountain since 2016. Her work experience has been largely focused on business development and marketing in business brokerage, finance, architecture, property management, and information technology. A long time resident of Cleveland, Ohio, she attained her undergrad from John Carroll University and her Master’s Degree from Cleveland State University. In 2013, she relocated to Denver with her husband, Joe, and her furry companions to explore the mile high lifestyle!