Transition planning; why it is the marriage that really matters – and not just the wedding

Transition planning; why it is the marriage that really matters – and not just the wedding
Louise Jeffreys, Managing Director at Gunner & Co., suggests that building a lasting, trust-based relationship with your business buyer is just as important as it is with your financial planning clients, if you are to achieve the successful transition you seek.
To us, in our role as specialist mergers & acquisitions brokers for the financial planning sector, success looks like a good deal done.  But what does that really mean in practice?  All too often, as we work with both the business seller and buyer on an M&A deal, we find that both parties will focus very heavily on the details of the contract itself – what we refer to as the wedding – and nowhere near enough time on what happens next – the marriage.
It is clear that the most successful arrangements are not only where the details of the deal itself are mutually agreeable, but also the ongoing plan, for clients, staff, family members, suppliers etc. is practically and carefully planned.
In this article, I aim to help you gain insight into this process by sharing with you some of the key topics of conversation and transition planning, that you, as a business seller, should have properly considered before selling your business to your chosen buyer.
Questioning the why
At our seminars, keynote speaker Peter Craddock often references ‘questioning the why’.  What he means is asking yourself searching questions about why are you looking to sell your business and what are you looking to achieve – for yourself, your clients, your team?
Without having such clarity at the start of your exit journey, it is impossible to measure that idea of a ‘good deal’ with any accuracy.
As you meet business buyers, and even once you’ve found someone who you believe is the very best fit to buy your business, you’ll find that there will have to be compromises made along the way.  This is inevitable to reaching a mutually agreeable deal.  However, how do you create a frame of reference for when to compromise, and when not to (and to what extent you’ll risk losing the deal)?
Having absolute clarity over why you are doing this, and what you are looking to achieve, in advance, gives you that reference point from which to compare.
As you move progress through the journey to sell, from meeting perspective buyers, choosing preferred options, negotiating contracts etc., always take the time to question your why.  This will give you the bigger picture perspective you’ll need, when all the questions are relating to what may seem to be tiny details.
If, for example, you are selling your business to spend more time with family, or improve your work/life balance, you may want to prioritise a short transition time over the weighting of financial payments.
That Monday morning feeling
No, I don’t mean any old Monday! In addition to having absolute clarity on why you are selling your business, and what you are expecting to get out of it, it is essential you have a clear understanding of what life will look like on the Monday after the deal has been done.
If you will remain working as part of the new structure, will that be on an employed basis? If so, it is  likely to mean being bound to normal terms of employment (maybe these are things you looked to escape when you set up your business) – such as 20 days holiday, and rigid working hours.  Will you still be responsible for managing your current team, or will someone else become their boss?  Will you be directed by targets and reporting?  Larger organisations will often have more structure than the business you have led, and this is a mind-set shift you must prepare for.
Try to spend some time with other senior employees in the firm to observe the culture – having as many of your pre-meetings at their office will help.  And remember to talk to your family about how your day-to-day availability may change as flexibility might be compromised. But, above all, it’s essential to talk with those taking control – not everything is set in stone, and usual working practises these days are probably much more flexible than before you set up your business.
If your plan is to retire, all buyers will still look for you to complete a transition period.  Since your payments will almost always be based on client continuity, a successful transition is just as important to you as it is to your buyer.
Before the deal is complete, be sure that you and your buyer are in agreement as to what that transition looks like.  Some examples of questions which spring to mind here are: will you need to be available five days a week or only at certain times? Will you work from your office or their office? Is there an official end date to the transition, or is it based on completing specific tasks?
Many people often feel they are being asked to work for nothing during this period.  The reality is that the value you are offered for your business will be dependent on this transition.  A buyer will not pay the market rate for a business without a genuine handover period – it would be deemed too risky.
A successful transition
Whether you are retiring or working on, your business will be ‘aligned’ to the new business post the sale, and there are a lot of things to consider to make that process as smooth as possible, without affecting your all-important client service levels.
Again this is something you should be planning before your deal is completed, because you will want to be putting this into place from that first Monday morning.
Transition planning, your 7-point checklist: 

  1. Role matching exercise: If you have a large team, your buyer will want to identify any potential overlaps with their existing team.  An exercise has to be carried out together to assess the amount of overlap of staff and understand the plan going forward.  Unfortunately, this may mean redundancies, which could be in the buyer’s business if your team is deemed better qualified for example.  Factors such as work location should be discussed here. If working from home or flexible working hours are currently the norms for your team, this may need to be reviewed to understand what impact such practises might have in the new environment.
  2. Announcements to staff.  It is essential to have planned out how and when you will announce this significant change to your staff.  Many sellers prefer to do this ‘once the ink is dry’ on the deal, however you then run the risk of the information leaking, and you not having control over the message.  Discuss with your buyer what the best approach is, and also how they will be announcing this to their staff.
  3. Client communications.  This is the backbone of any transition plan.  My preferred approach is to segment your clients by their needs/size/risk level, and develop the right communication plan for each segment.  That could be a face to face meeting with you, followed by a dual meeting with you and a new adviser if that is to be the case.   It could be as simple as a letter and a phone call. You’ll need to get this right. In an asset purchase, following the FCA’s supervisory report a couple of months back, it is normal practice to get written consent from every client to change agency to the buyer before a deal can complete.  Work with your buyer to understand how you are going to do this in the most effective way possible.  Clients who do not consent will not be part of your final consideration calculations (how much you receive for the business).
  4. Back-office data migration.  This is another essential – and laborious – element of a good transition.  Talking about how you manage your client data right at the start helps to identify any challenges as early as possible.  If you are fortuitous enough to use the same back office system as your buyer, the complexity of this task will be reduced. Be sure to set aside significant time with your buyer’s team to plan how this data migration will be executed, and remember to test the system and data significantly before declaring it complete!
  5. HR, contract harmonisation & infrastructure. Employment contracts are protected by TUPE law, so where an employee is ‘transferring’ to a new company, their contractual obligations have to be honoured.  Identifying any differences in standardised contracts between the buying company and the selling company is essential.  Furthermore, you and your employees will need to move onto the buyer’s internal systems, such as payroll, holiday calendars, sick leave procedures etc.  There’s a lot of detail to think about, for example, perhaps your paydays don’t align – all of these things need to be planned and thought through.
  6. Financial management. As with client data and systems, accounting systems will need to be migrated or aligned.
  7. Supplier relationships. It is likely that your buyer will not want to maintain relationships and contracts with your current suppliers.  A simple exercise of running through your detailed P&L accounts, and specifically your cost base, will allow you to identify your suppliers.  Bear in mind any notice periods and break clauses to switching these off – and review them with your buyer before making the final decision which get shut off.  It is likely there will be clauses in the contract for this to have happened.In summary, the more you can plan ahead then the easier and more successful the transition to the new business will be for everyone concerned.
    About Louise Jeffreys Louise is the managing director of Gunner & Co., the boutique M&A brokerage service supporting  financial planners to define and undertake exit planning, and equally with financial services businesses looking to grow through acquisition. Contact