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5
Sep

The Importance of Transition Planning

It’s about the marriage – not the wedding!

Why building a lasting, trust-based relationship with your business buyer is as important as it is with your clients.

Through our role as specialist mergers & acquisitions brokers for the financial planning sector, success looks like a good deal done.  But what does that mean? All too often when working on M&A deals with business buyers and sellers, we find both parties focus too heavily on the details of the contract (the wedding) and nowhere near as much time on what happens next (the marriage).

So, a good deal done, is where the details of the deal are mutually agreeable, but also the ongoing plan, for clients, staff, family members, suppliers etc. also looks good.

In this paper, I want to share with you some of the key topics of conversation, and transition planning, that you as a business seller should have in place, before selling your business to your chosen buyer.

Questioning The Why

At our seminars, our keynote speaker Michelle Hoskin references ‘questioning the why’.  Why are you looking to sell your business? What are you looking to achieve for yourself, your clients, your team? 

Without having that clarity at the start of your exit journey, it is impossible to measure that idea of a ‘good deal’. 

You’ll find as you meet business buyers, that even once you’ve found someone who you believe is the very best fit to buy your business, there will be compromises along the way.  This is inevitable in reaching the mutually agreeable deal I referenced earlier.  However, do you have a frame of reference for when and where not to compromise, 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 down the journey to sell, from meeting perspective buyers, choosing preferred options, negotiating contracts etc, always take the time to Question the ‘Why’.  This will give you the big picture perspective you 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 rebalance your work/life balance, you may want to prioritise a short transition time over the weighting of financial payments. 

Monday Morning

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 looks like the Monday after the deal has been done.

If you are staying with the buying firm, is that as an employee?  Does that mean you will be bound to the norms of employment -probably things you looked to escape when you set up your business such as 20 days holiday and set working hours?  Will you still be responsible for your employees, 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 meetings at their office will help.  And remember to talk to your family about how your day-to-day availability may change; you might not be able to pop out quite as easily as before.  But above all talk to your new prospective employers – not everything is set in stone, and usual working practices these days are probably much more flexible than before you set up your business, especially with the adaptation to more work-from-home policies.

If you are retiring, all buyers will 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 you and your buyer are in agreement on what that transition will look like – will you be available 5 days a week or only at certain times? Will you work from your offices or theirs? Is there an official end date to the transition, or is it based on completing specific tasks?

Vendors 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 the success of this transaction.  Therefore a buyer will not pay market rate for a business without a genuine handover period – it would be deemed too risky!

A Successful Transition

Whether 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 client service levels.

Again, this is something you should be planning before your deal is complete, because you will want to be putting this into place from that first Monday morning.

Transition Planning, a 7-point checklist:

  • Role matching exercise: If you have a large team, your buyer will want to identify if there is an overlap with their existing team.  An exercise will probably be carried out together to assess the amount of overlap and understand the plan going forward. Factors such as work location should be discussed here. If working from home or flexible working hours is the norm for your team, this may need to be reviewed to understand what impact that might have in the new environment.
  • Announcements to staff.  It is essential to have thought about how and when you will make announcements to any staff.  Many sellers prefer to do this ‘once the ink is dry’ on the deal, however you 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. 
  • Client communications.  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 the new adviser. It could be as simple as a letter and a phone call.
    In an asset purchase, 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), although could be scooped up in future payments.
  • Back office data migration.  Another essential and sometimes laborious element of a good transition.  Talking about how you manage your client data as early as possible helps identify any challenges early on.  If you are fortuitous enough to have the same back-office system as your buyer (an element of matching considered by Gunner & Co.), 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.
  • HR, contract harmonisation & infrastructure. Depending on the transaction structure, employment contracts may be protected by TUPE law, meaning that where an employee is ‘transferring’ to a new company, their contractual obligations have to be honoured.  Identifying 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 buyers 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 discussed advance
  • Financial Management. As with client data and systems, accounting systems will need to be migrated or aligned. 
  • Supplier Relationships. It is possible your buyer will not want to maintain relationships and contracts with your suppliers, including people like your landlord.  A simple exercise of running through your detailed P&L, and specifically your cost base, will allow you to identify your suppliers.  Bear in mind notice periods and break clauses to switching these off – and review 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. 

As you can see, there is so much more than simply agreeing commercial terms on a deal, and the earlier you discuss the business transition plan, the better.

Gunner & Co.’s workshops cover the A-Z of selling your firm, with experts in legal, tax, due diligence and operations.  Attending a workshop ahead of selling would allow you to start preparation as early as possible.