Selling your business doesn’t magically happen with a piece of paper and a wire transfer. The value of a business, one that sells to a financial buyer, is what transfers from the existing owner to the new owner – the transferable asset. The final step in a business case is the transition. Once the inks dry, moneys in hand and you’ve paid for the celebratory dinner, your transition period begins. But can you keep it together to transition successfully?

Many of the sellers we encounter simply want to sell their business and walk away as if selling a house. I sell my house at the beach, and I walk away, but that’s not what happens in business. Our approach is to help you plan for the transition period. Almost every private equity group, strategic buyer or investor is going to want some transition period with the former owner. Too often, owners come into a sale process pushing back against sticking around. They’ll say, “I don’t wanna hang around”, or “I’m done.” Well, that’s a turn off to many buyers. Too many owners say, “…give me my $20 MM” and would run right out the door. That attitude tells buyers, 1) “I’m difficult to deal with”, or 2) I have something to hide.

“The biggest mistake people make is their attitude! If you’re going to sell your business and you want to sell to the biggest group of buyers in the world, then tempering your ego is paramount.” – Scott Spector

Many owners are concerned about what people will think when they consider selling their business – the employees, customers, vendors and even the advisory team that guided them through the process. Owners are nervous; is the buyer going to take care of their people, their salaries and bonuses. They’re nervous if the long-standing customers are going to stay with the new company now that you’re “gone.” Even the vendors; owners are nervous about those relationships. The easiest way to ease all those fears is to plan to be around after the sale. It’s not forever.

The time frame can range anywhere from 1-3 years (rarely does it ever go past two for many reasons). If the seller’s attitude turns sour in the transition period and affects work, many will find themselves on the other side of the door, ill feelings with the investor derailing any earn out or jeopardizing the rollover equity in play.  The second point is plan ahead; give yourself a year to work with the folks and don’t be difficult about it! Don’t be an asshole!

You would think it could be a simple conversation to have with the seller, but it’s not. It’s going to vary based on the type of buyer interested in your business. We have to talk about compensation, non-competes, a strategic plan, a framework for the transition period and your level of involvement in the business moving forward. It’ll be tailored to the industry as there’re many considerations to address. BUT, if you’re pushing back from the beginning and just want out… then, “Houston, we have a problem!”

“If I give you $20 million today, you’re not the same person tomorrow.” – David Reed

Avoid the biggest mistake in your case and when it’s time to entertain offers, you tell the buyer, “…listen I’m gonna hang around for a year or two.” You just dramatically reduced the risk profile of the transaction significantly! Those ten words will have a net positive impact on the price of your salle. You’re a smart guy! If you come in and say “…listen, I’m 62…I want out when I’m 64. I’m looking to partner with the right group…I’m going to be here and help you…I’ll do the things that I’m best at…” Whatever that may be, bizdev, operations, logistics, etc. and leave the rest of the stuff up to private equity or whomever. The point is they have access to you so the risk of something blindsiding the buyer is diffused right there.

At JSP, we do our best to set expectations and educate potential sellers and founders early on about the ins and outs of a sales process. Understanding exactly what goes into a transition period and why it’s important is imperative if you’re seeking a premium exit. We mostly work with clients over the age of 55. It’s a demographic that naturally comes our way. Many of these business owners have not had anyone tell them what to do for a long time. The idea of having someone fly in from New York who’s maybe 28 years old and is the lead for the private equity group, and the business owner is thinking, ‘I have to listen to this guy?’ Well Dave, that’s a yes and a no. The PEG is not going to come in and tell you what to do, but you’re going to be part of a group now. You’re an employee and you’re going to have goals; you’re going to have a budget like everybody else and that’s why you’re getting $20 million Dave!!!

Remember, you’re a really rich person now AND you have to do your best to ensure this transition happens successfully. Scott and I go home sometimes shaking our heads because we’ve had some sellers that just don’t want to do it. They don’t want to play nice, and they think they don’t have to. We’ve had people walk away from deals because of their ego, attitude and nose deaf lack of humility who, “…don’t want to work for anybody…I started this business because I didn’t want to work for anybody and I’m not going to work for anybody!” <—asshole.

“And just like that you’re not willing to do what it takes to get top dollar.”

It reminds me of a client several years ago who sold for 4X and agreed to a 12–24-month transition period. After four months, John and I spoke on our monthly check in and he was livid! “I hate this job; I hate coming to work and I hate doing it for a lousy-60,000-fucking-dollars.” I had to bite a hole in my lip from laughing. “John”, I said, “remember look at your bank account…see the seven zeros following the 3?” After peeling John off the ledge, he calmed down and not unlike many sellers they may disagree with how the new owner will operate their business…John, it’s not your business anymore.

Are you getting the picture now? Is there a solution to not have to “work for the man” for a year or two? Absolutely! Are you willing to do the work and invest the time in getting there? if you develop a management team and you begin to remove yourself out of day-to-day responsibilities your transition is minimal. We had one client add a GM and another put a CEO in place. Both owners focused on high-level strategy and the necessary preparation steps for a successful exit. They still went to trade shows. They’re the big picture guys, and they’re not around but several days a month. They don’t need to transition because they’ve built a professional management team which is what a buyer would prefer in the first place.

PEGs are financial wizards. They’re not operators and don’t want to be. Some of them transition the bestsellers into Operating Partners who advise and counsel new acquisitions to guide them through this period. It’s going to take 2-3 years of planning and some outside resources to help you build a team. You may not have all the skills out there to build a good management team. At JSP, we support your efforts with our ancillary practices from Executive Search, Coaching and Growth Consulting to bring the right people into the right roles on board. We help you build a team that can run the business without you and then literally let them run the business – IF you let them! When you put the pieces in place the transition is not an issue for you.

Ultimately, the success of your acquisition hinges on you! Stay and guide NewCo into the future with your former employees and the buyer’s team for a year or two. Second, you can develop a professional management team through succession development with our guidance and your oversight. Third, you can do neither, run for the border and take millions less into the sunset. It’s your choice. It’s your sale.

The transition period is integral to the success of the transaction because the buyer is going to look at transition components as they get into confirmatory due diligence. Part of due diligence is making sure the numbers, operations and people work, and they understand if you run your business well that’s all going to check out. They’re also looking at what’s critical, vital or necessary in the integration. If they start uncovering blemishes in your business and foresee getting on a plane every Monday morning for the next six months, then that’s a problem. Question marks don’t close deals, certainty does. Buyers want to see a team in place that’s excited to come aboard. A third-party professional management team is best because when the business sells, they may benefit a little bit financially allowing the integration to happen.

If I give you $20 million today, you’re not the same person tomorrow. Your mind’s in Turks and Caicos. If I bought your business for $20MM and said you need to run it for the next year you’d be coming in from the Virgin Islands one day. It’s what happens and buyers know this and the other group of people called the seller’s family. Most of our clients have put off vacations for a long time. We’ve had a seller plan a trip the month after closing. They’re flying to St. Thomas and taking a boat to Tortola and a car to Long Beach Bay where they’ll stay for two weeks before taking a 60-foot Fountaine Pajot around the BVI’s for two more weeks. They’ve been planning this trip for a long time! The deal is supposed to close by February 1st. The trip’s happening regardless so the lawyers hopefully will get it done, but it’s things like this that come up because you start to think about having a life.

Many business owners don’t have much of a life as they’re so dedicated every day to making it happen. Now this NEW life hits them and they’re thinking they don’t have to go to work anymore. What would you do if you didn’t have to go to work and you have a bunch of money in the bank now and time on your hands? It’s funny how you figure it out what to do next!

“Just because you own the business, doesn’t mean you have to run the business!” – David Reed

All joking aside. What’s our advice about a transition? Keep an open calendar for 6-12 months after the sale. If you want to be out when you’re 65, then give yourself a year or two to prepare and market the business. We’re going to go back and forth with various buyers, find the right deal for you and then give yourself a year to transition. Remember, the long run is to build up a management team just because you own the business doesn’t mean you have to run the business. It takes a certain amount of stones and a healthy ego to delegate and let go; not everybody’s capable of that one, not everybody’s a good manager. Some of you suck at managing people (one reason your revenue has plateaued), because you’d rather do it yourself.

If that’s you and you don’t want to put a management team in place, then you need to prepare now. Enter a business case with the right attitude, look across the table with someone and say, “I’m going to work for you and we’re going to be successful together,” and just get that on the table right off the bat and stick with it. The transition period is the last domino and ensuring it falls in the right direction is vital if you’re going to hang on to the seven zeros after the 3. The wrong attitude through a transition will wind up with indemnity and clawback, and that’s no bueno… the conversation continues…