Part II-Transition Planning
Finding Your T-Spot, Again!
(Plan, Negotiate & Agree on the Business Transition before closing!)
This is part 2 of a 3 part series. Check out Part I here.
Quick Recap:
Whether you’re buying a business or selling a business, the transition needs to be planned out with as much care and thought as the deal itself. The deal is sexy and fun and gets all the attention. It’s exciting to figure out how much you’re buying the business for, or what a great deal you’re getting, amortization schedules, interest rates, balloon payments, ooh la la!
But finding the T-Spot, in other words drafting a solid transition plan, will absolutely make or break the business, no matter what wonderful terms you were able to negotiate. The transition must be planned out ahead of time and negotiated along with the deal.
Literally, follow the seller around like a puppy for at least the first couple of weeks
And absolutely, do more listening than talking!
Remember, you bought a money making machine, a business that is already successful - your job is to not screw it up!
To help create your business transition guide, we’ve broken the process into five core areas:
Business Set Up
People, including your seller
Processes
Product or service
Finances
We covered business set up in Part 1.
This is written in a check list like format, but if you would like the actual checklist, click reply with T-Spot.
On to People and Processes!
Core Area 2 - People
The second core area is people.
Employee retention is one of the most important aspects of a business transition, maybe even the most important part.
Rapport building skills come into play again, this time with the employees.
Rule number one: Don’t make people fear for their jobs!
You are managing the culture, as well as the business performance.
Consider offering training and growth opportunities, but don’t make any promises that you can’t keep.
Maybe you can give a retention bonus to encourage employees to remain on board during the transition? And link it to continued performance? Keeping staff onboard while maintaining revenue and profit standards during the transition would be a great win in my book. The business is already successful:-) You don’t have to be dramatic. Just keep it going.
First Team Meeting
Plan out your first team meeting where the seller announces the sale and introduces you as the new owner. Depending on the size of the business and other logistics, try to gather the entire company at one time. Zoom and other technologies can help if you have acquired a dispersed workforce. If this isn’t an option, then at least gather department heads and key staff.
I would ask the seller to start with a message containing the following elements:
A brief but upbeat, excited-for-the-future message about the sale and transition of the company.
And what a positive change this is going to be.
Have the seller say something like “Ms. Buyer and I have been working together over the last several months, {the due diligence period} to discuss our untapped potential and ways to take advantage of new opportunities in our field.”
Have the seller introduce you as the person ready to take the team to the next level.
Consider writing a draft of what you want the seller to say.
You may want the seller to avoid talking about topics such as:
Job security, or not.
Any specific plans for the future of the company.
And the seller’s new role in the business, if any. (You as the new owner should be the one to define the seller’s ongoing interactions with the team and the company.)
Beyond the initial introduction, I would keep the meeting relatively short. Maybe 20 minutes max. Key points should include:
Personal facts about you and your family, so they can get to know and like you, find common ground with you.
Share your experience in this industry, or relatable experience from another industry.
And what you love about this company.
Tell them you plan to keep everything running the same as it has been, and you only intend to make minor tweaks over time, with their input.
Explain how you plan to meet with and learn from every member and process and soak up as much company wisdom as possible over the next several weeks.
If you have determined that a retention bonus or a new employee benefit is an appropriate part of your on-boarding process, share the high-level information now.
Let them know you have an open-door policy and look forward to meeting each of them 1:1. Tell them you’ll be asking lots of questions and taking notes and hoping for honest feedback and ways to make improvements. Tell them you want to talk about topics like:
What do they need to continue to be successful in their current roles?
What training have they received or wish they could get?
Share that you want to hear their thoughts on operational efficiencies.
And technologies you should be investing in.
What are their individual goals and focus?
Which clients need to be fired and why?
Who do they look up to most within the organization?
Consider revisiting the Grit test from Module 2 during theses 1:1 meetings.
After that first staff meeting, you will also want to look at the wider “business team”, including:
Suppliers and Vendors
Has your company been a good payer?
Or are they always behind?
Do you need to mend relationships?
Will you have to prove your own creditworthiness?
Technology Provider
Who is your tech gal?
How does she handle tech emergencies?
What routine maintenance policies are in place?
How is data being backed up?
How are you ensuring cyber security?
Marketing and SEO Agency
What campaigns are currently running?
What keywords are you ranking for?
What are the top marketing channels being used?
Law Firm
Are there any contracts expiring soon?
Who handles collections?
Are there any pending changes in the law that may impact your industry?
Then back to the former team captain…
Even though I already said your employees are probably the most important part of your new business, and the biggest part of your transition, I’ll put the seller right up there with the staff. How you interact with the seller will have a huge impact on the “feel” of the transition and could have a heavy impact on the whole transfer process. I suggest the following tips in dealing with this sometimes-awkward new relationship.
Think of it as dating your brother’s best friend...
Risky business, right?
Except in this case, it’s not your brother, it’s your new staff members and the seller has been their leader for many years, maybe even decades. If the staff are long term employees, and I hope they are, then they’ve been through a lot with the seller and must have some level of respect and admiration for them.
Even if you don’t fall madly in love with your seller, you definitely want to maintain a good relationship with him or her because you are stepping into their shoes. They may not fit perfectly, but they are yours for the next leg of the race. Messing this up could have a negative impact on company culture for a long time.
Allow, and even encourage the seller to maintain their office space.
The last thing you want to do is immediately boot them out the door. This could be seen as disrespectful at best and adversarial at worst.
This happened to me when I sold my firm. The buyer hadn’t given me a single dollar and she was already asking me when I would move my stuff out of the office. I had every intention of making personal introductions and cheering her on, but…didn’t happen that way.
Set up your own work area within the seller’s office if at all possible.
Remember, you’re probably not doing much actual work the first week or so. You are observing and shadowing and how can you do those things at a distance?
Don’t dismiss the seller prior to the term that you originally negotiated.
You can’t possibly know everything there is to know in a week or even a month. If the two of you are having struggles, which is possible, perhaps suggest a day or two off for the seller. See you back again on Monday!
Yes, you are in charge, but this is no time to make an enemy. I would probably play it very low key for the first week or two. Maybe find another influential employee to connect with, even ask for a few tips on how to deal with the old boss:-)
Core Area 3 - Processes
The next stage of a successful business transition is looking at the company processes. And documentation is a must.
First, observe and document. Then…
Observe and document. Then….
Observe and document.
Standard operating procedures are one of the keys to exponential growth in your company. You will not become a billion dollar company or even a million dollar company without standard operating procedures.
The implementation and use of SOPs will allow for more consistency, greater profitability, and smoother transition during times of employee changes, all while maintaining high standards set by you, the leader of this company. It provides a roadmap for each task and keeps the business running on all cylinders.
Some specific benefits of having processes include:
Creating a culture of documentation.
Increasing safety, including cyber security.
Standardizing key processes.
Accelerating productivity.
Boosting quality.
And improving efficiency.
On the other hand, you must also allow for flexibility and for creativity, so there does need to be some balance. Just because there is a standard operating procedure in place doesn’t mean you never revisit it, or change it, or actively seek better ways and better technologies.
As you meet with each individual employee:
Determine which, if any processes and procedures are already documented.
Ask about any “side” or unofficial tracking or spreadsheets employees may be using to make their jobs easier.
a. What exactly is being recorded here?
b. Are there better ways to do this?
c. Could other departments make use of this data?
Next, figure out how up-to-date and complete that documentation is.
Then ask them to begin, and or begin updating, the SOP for each of their core functions. Consider scheduling a follow up meeting where they will train you on their job duties. Think of it as an episode of Undercover Boss.
But first…Make a process—-- for how to make a process. But seriously, make sure everyone is using the same screen recording software for example and storing the documentation in the same manner. Give them guidance on how this project should be handled.
Choose a format for the SOPs.
a. Checklist
b. Flowchart
c. Narrative
d. Tables
Create a template and make sure it always shows the last date of update.
Use a consistent style
a. Begin with action commands.
b. Be concise.
c. Make it easy to scan through.
d. Any lengthy explanations should be footnoted at the bottom.
e. Use headings and bullet points to break up large blocks of text.
f. Include a section for likely problems.
Designate a specific and digital, storage process.
Then of course, test the SOPs with someone not familiar with the job. In this case, you.
SOP Don’t’s
Creating these operations manuals can be a daunting task and it’s an easy one to get bogged down in. If this is keeping you from beginning the process, you may want to start on a smaller scale by outlining each process first, with the plan to be to go back and fill in the details on the next pass.
Some common pitfalls to avoid include:
Having too much text, making it too difficult to get through.
The procedure is out of date.
Or it's just wrong.
It’s not easy to find or access.
There are no images for clarification.
Or it includes long boring videos with too much jibber-jabber.
While the team members are working on their documentation, you and the seller should be doing the same. One of the biggest pitfalls of buying a small business is the Seller Brain Drain. So much of the business is stuck in the seller’s head. The quirks of different customers, who pays late but always pays, the way you have to wiggle the key just a little bit to get the safe or whatever open.
And much more important items, like how to get the best deals on certain supplies or what time of year is best to stock up on something, or economic indicators to watch out for.
Buying a business is no reason for a big head! A smooth transition will make or break even a good deal.
Respect.
Listening.
Planning ahead.
You’ve got this!
(More T-Spot tips in the next issue…)
