Transition plan and selling a business
Use a transition plan when selling your business? The process to sell a business is not quick and easy. At the moment it is taking about 8 months to sell a business, if it sells. This means the business is available for about 6 months. The buyer and seller then complete negotiations on the purchase price including the terms of the deal. The next main step is to start the due diligence and if both buyer and seller are still in agreement, escrow opens and then hopefully about 3 to 4 weeks later, escrow closes and the business moves from the seller to the buyer.
Even if the business closes escrow, almost without exception the buyer wants the seller to continue in an active role in the business in some capacity for a period of time. The buyer wants time to meet and get to know the employees, set up arrangements with suppliers, put basic items in place like bank accounts, and a myriad of other items. At the end of the day, however, it all needs to make sense for both the seller and the buyer and the best way to do that is to build a transition plan.
What is a transition plan?
A transition plan is generally a window of time of say 4 to 8 weeks that makes sure all the important and often taken for granted details of owning and operating the business successfully move from the seller to the buyer as quickly and smoothly as possible.
What should you include in the transition plan? Over the last few years I have put together a free document which is a 127 point Business Transition Checklist. It is meant to be comprehensive but not exhaustive as unique items apply to each type of business. If you would like a copy of this document please give me a call on 916 570-2674 or use the contact page on this website for me to contact you.
A transition plan can overlap with an Exit Plan. An exit plan is essentially a process for the business seller to exit the ownership of their business to manage the protection and eventual transfer of assets or stock in a proactive, tax efficient manner. Essentially a business owner can have 5 types of assets. These are Personal Property, Real Estate, Business Interests, Insurance Plans and Employee Benefits.
Personal property includes savings, stocks, bonds and personal effects. Real estate includes both residential and commercial property. Business interests include the business legal entity such as a corporation, partnership or LLC. Insurance plans include life, health and annuities. Employee benefits include pension, 401(k), IRA and stock options.
A quality Transition Plan is all about success. Its ultimate goal is to ensure that the business and the owner move from actively owning the business to handing it off to its new owner.
The best analogy I like when a business transitions from the seller to the buyer is that it’s like juggling two snowflakes. Every snowflake is unique because of temperature, the absence or inclusion of a piece of dirt, the number of water molecules, spins of electrons, hydrogen and oxygen etc. So too is a business and its owner.
To preserve and maintain the business and protect its uniqueness it must be treated carefully and properly. The same applies to the owner. The owner can live without the business and the business can live without the owner as long as proper care and attention are given to each so when the next owner comes along with their uniqueness, like another snowflake, it has to make sure it can mesh with the business and both be successful.
If you’d like more information about how to transitionn out of your business, feel free to get in touch with me for a quick consultation. We’ll discuss your particular business, what’s important to you and make a plan for those first few steps.