Closing Time.
You may be dreaming about the day you sign on the dotted line to sell your business. If you followed your exit strategy and the deal meets your needs, then when that day comes it will leave you with no regrets. However, getting to that magic moment, after riding the roller coaster of marketing, due diligence, and everything in-between, you have to go through the final step. The closing process. Let me share with you what to expect.
EXPECT A MOUNTAIN OF LEGAL DOCUMENTS
If you get through due diligence and both parties agree to the sale, expect piles of legal documents that, depending on the type of sale, will include the items listed below:
The purchase agreement for the business and property/ building
Flow of funds at closing
Leases on buildings and/or equipment
Employment agreements
Inventory reports
Contracts for clients, vendors, and financing
HR materials/handbooks
Employee lists and non-competes
Insurance
Accounts Receivables/Accounts Payable
Open orders
Process procedure documents
Debt
Banks
Technology information
Status of business good standing
You will need to read each of these in detail with your attorney, who will help interpret what they mean and help you understand what you’re signing. Your attorney should share their feelings about the documents with you and your advisor rather than with the buyer directly.
TRANSITION AND INTEGRATION PLANNING
Whether the transition between ownership is smooth or rocky will significantly affect how you feel about the sale. Before closing, think about how the buyer will integrate into your company or your company into theirs. What’s the plan for this? For example: How will you estimate new work? How will you place orders? How will you bill and collect money? What will these new systems look like, and how can you make integration smooth for customers, vendors, and employees?
“Plan the integration. Whether the transition between ownership is smooth or rocky will have a large effect on how you feel about the sale.”
With one of my first sales, the transition felt more like the aftershock of an earthquake that we had to react to versus a welcoming transition. I assumed certain things were happening, but I really didn’t know what was needed or was going to happen with our systems or how it would affect our customers. As a result, we ended up spending most of our time putting out some massive fires and losing customers. Understanding the transition plan and process upfront will help address those concerns. Before you move to closing, consider how you will develop a smooth transition plan for the following key departments:
Human Resources
You will need to understand and direct questions about benefits, review processes, hiring/firing, and, most importantly, how to collect and track time sheets and payroll information to the right person. No employees want a surprise on payday!
Finance
Your accounts payable/receivables and related systems need a transition plan to avoid missing a vendor payment or client invoicing.
Information Technology
Consider how connectivity to web-based ordering systems will be impacted. Also, consider how your website will connect to the buyer’s site.
Operations
Estimating, ordering systems, inventory, and shipping may be impacted by the sale.
Sales and Marketing
Develop communication plans for broader market announcements, rebrand of collateral, websites, signage, stationery, invoices/statements, marketing campaigns, and connection to your Customer Relationship Management (CRM) system. Prepare the sales team with language to share that will showcase the benefits of the sale to the customer. If the sales and service teams, those interacting with customers, are confused and frustrated, the customers may feel that during the transition.
Each company will have its own unique transition needs. A good rule of thumb is to look through this list and ask which systems within each of your departments might be impacted by the sale.
HAVE CONTROL BEFORE YOU LOSE CONTROL
Understand that your customers will have questions about the change. Develop plans for each department and define your goals and how each fits into the overall plan. Develop a script for your employees, so they are all sharing the same message with clients. Before you close is the time for planning. If you wait until after the closing documents are signed, it will be too late.
Regardless of how you structure your sale, understand that the minute you sign off on closing documents and receive your check or wired receipt, nothing will be the same for you, your employees, or your customers. You will need to announce the sale and put your transition plan into action. If you’re staying on, you’ll need to understand your new role in the company and develop an after-sale strategy. Finally, you have to understand that the company is no longer yours and do the best you can to ensure that things go as smoothly as possible for staff, vendors, and customers moving forward.
To minimize the risk, the buyer may withhold a small portion of the payment (5 to 10 percent) for a period of time (six to twelve months) to ensure receivables and reps and warrants are covered. Essentially, the buyer wants to ensure that once they take over, everything the seller stated about the sale—from the condition of the building to the inventory to any pending legal issues—is confirmed.
DEVELOP YOUR PERSONAL TRANSITION PLAN
After you’ve developed a transition plan for the company, you also want to develop one for yourself. Your personal transition plan should be part of your considerations before you make the sale. You can tie additional compensation for yourself and the key leaders in your company to your transition plan. This will protect you and your key staff members if the buyer deviates from the agreed plan without your approval.
Remember, the transition will take time. The earlier you start outlining your plan, the smoother the transition will be. If you sell to a larger company and stay on after the sale, understand that you may not be part of the buyer’s leadership team, meaning you will be somewhat in the dark regarding the buyer’s plans for you and the company once the sale is complete.
If you stay, also understand that you will no longer be allowed to call all the shots. It is important to be clear on this point. Far too many sellers and buyers tell each other that it will be business as usual moving forward. It won’t. You’re no longer the owner. You’re not responsible for the outcome of all things. Your role in the greater, new company needs to be clear. If it’s not in your DNA to take a back seat, you should go the route of transitioning yourself out of the company.
PLAN YOUR STAFF ANNOUNCEMENT
Your attitude and the amount of time you spend developing your announcement speech and transition plan will significantly affect how things go when you announce the sale to your staff. For example, if you’re excited and can clearly answer your employee questions by providing a well-thought-out transition plan that shows who they can report to, you will get a vastly different reaction than if you don’t have any clear answers or plans.
Telling staff you’ve sold your company can be difficult because you’re telling people you care about—people who have helped you achieve the success that’s allowed you to build a business others want to pay for—that you’re leaving them. Depending on the deal, you may not leave for a year or five, but you’re still leaving the role that has all the control. As a result, everything will change.
In a recent company sale, I thought about what to say to employees. I tried to anticipate the questions they might ask, and I developed appropriate answers. Because I knew why I was selling and was confident my reasons for the sale and the deal I brokered fell in line with my exit strategy, I answered the why question confidently and from my heart. Then, I announced the sale in our staff room at 3:15 on the afternoon I closed on the sale. I made the announcement like I typically made announcements—between shifts. I did this intentionally. I didn’t want anyone learning about the sale from word of mouth, and I wanted to control the message.
EXPLAIN YOUR WHY
I started the announcement by explaining my why. I talked about growth, which was what employees wanted to hear. I then introduced the buyer as a company without having anyone from their firm in the room. I talked about the buyer and their strategy that I had helped work on, all the while returning to my why and reinforcing the fact that the deal would be better for the employees long-term. I explained that representatives from the buying firm would be in the following day to answer additional questions. The employees were more open with their questions because we were in a familiar environment, and the buyer wasn’t in the room. To get things started, I actually sat next to a few of them and asked questions I would want to know.
PAINT A CLEAR PICTURE
Always prepare for the announcement with staff ahead of time. Put yourself in their shoes and really think about what kinds of questions they’ll ask. Anticipate their questions the way you would anticipate questions presented by interviewers for your dream job. They’ll want to know:
Why are you doing this?
What are you going to do?
What does this mean to my family and me?
Will I still have my job?
Will my pay change?
Who can fire me or give me a raise?
What will my benefits look like?
In addition to preparing for the announcement, you can do a few other things to minimize the shock. If you have employees who will lose their jobs, tell them about it before making a group announcement. If you do it after the group meeting, you’ll lose credibility, and other employees will worry whether they’ll be next. During the all-company announcement, state who lost their job and why, and explain that the remaining employees will be part of the go-forward plan.
“Your employees, clients, and vendors should know about the sale from you.”
If you don’t follow your exit strategy and plan before your announcement, you won’t feel good about it. However, if you plan your exit strategy and how you want your announcement to go, it will feel more like a celebration than a loss.
Selling a business is tough. It’s emotionally and physically draining, and when it’s all said and done, it can be even tougher. If you’re staying on, it’s tough because you no longer call the shots. If you’re leaving, it’s tough because that chapter in your life has come to a close. During the days or weeks following the sale, give yourself a break. Take some vacation time and get away. I’m not talking about taking a tour around the world or embarking on your dream vacation. I’m talking about going somewhere to allow you to reflect on what has happened and what will happen during and after the transition period.
If you're thinking of selling your business and need an advisor, Paradise Capital can help. Our team of experienced professionals will come along side you to get your business ready to sell, watch your back, and make sure you come out with the best deal possible financially and emotionally.
If you're thinking of selling and haven't yet developed your exit plan, read my story of successes and pitfalls in selling and buying businesses, No Regrets, How to Exit Your Business Emotionally and Financially Strong. You'll learn from some of the bumps I navigated and why we're passionate about helping business owners plan for a successful exit so they can enjoy their next chapter—with no regrets!
Paul Niccum is a Business Strategist and author of No Regrets, How to Grow and Then Exit Your Business, Emotionally and Financially Strong! and GrowNOW! Your Fast Path to Growth.
After building six businesses and selling numerous companies to publicly held companies, Paradise Capital CEO Paul Niccum has faced the same fears and emotional concerns that all sellers face. He's both a seller and a buyer—Paul has also acquired eight businesses for his own companies and has been involved in the sale of over 100 companies during his career.
