Platt Perspective on Business and Technology

Should I stay or should I go? 27: selling-off and buying out an already established business 7

Posted in career development, job search, job search and career development by Timothy Platt on September 16, 2016

This is my 27th installment to a series on intentionally entered into, fundamental job and career path change, and on best practices for deciding both when and how to carry through on it (see Guide to Effective Job Search and Career Development – 3, postings 416 and following for Parts 1-26.) And this is also my seventh posting to this series on buying or selling a small business or professional practice as a next step career move.

I began this portion of this series with a set of postings that address buying and selling a business from the buyer’s perspective (see Parts 21-23.) I then turned to consider these same career-changing transitions from the seller’s perspective, outlining a series of specific issues to address there in Part 24.

I began to systematically work my way through its list of issues to-address there in Part 24 and continued that in Part 25 and Part 26 . And I continue that progression here too, with this installment.

More specifically, I began this seller-side line of discussion with consideration of:

• The question of what would be sold off and what this means to the person who built this enterprise, who would now be stepping away from it, and
• The question of what that is worth monetarily and what can realistically be asked for when selling.

And I follow that here with consideration of:

• The question of timing, and of whether a seller would simply walk away in one step, or stay on through a transition period.

My reason for adding this point into this series might not be as readily apparent as are the issues and challenges of the first two to-address points as just repeated above. So I begin addressing it by raising and discussing how it can become an important point of consideration, by citing a specific case in point example that I got to see play out, first-hand while a consultant.

• My example scenario as selectively noted here, involved a small but locally significant and respected professional practice that was being sold off by an older retiring professional to a younger one who wanted to live and work in a smaller community – and not the large city that he and his family had lived and worked in, and with him working as someone else’s employee. And the most valuable assets that were held by this business practice, were its established client base and this business’ good will in its community.
• This is a situation where favorable word about a new business practice owner and even a measure of overt marketing help from the seller to encourage loyal clients to at least try working with a new owner, can make all the difference for that new owner in successfully taking over a business as their own.

I raise this question and consider its issues here, because the retiring professional, business practice seller in this case felt a great deal of ambivalence towards letting go and walking away from their “baby”: this enterprise that they had built from the ground up and that they had come to in effect define themselves in terms of. And they came to express that ambivalence as anger and as resentment towards the younger professional who they had in fact accepted as this business’ buyer and new owner to be. Buyer and seller had already come to basic agreement on costs and terms. And the buyer had made a real commitment to this change by leaving their old job and putting money down on a new home in the town they expected to live and work in now, with their family.

And one very unfortunate face to the conflict that the seller created here, was in how he spoke of leaving his business with his loyal, ongoing long-term customers – and all too often with disparaging comments about the buyer of this business, who wanted and needed to keep its customer base loyal to it through this transition, if he was to succeed here and without all of the delays and risks and expenses of having to build a new client base from scratch. This entire situation became very ugly, very quickly and in fact a significant measure of it ended up in court.

• This is an extreme worst case scenario that I have just raised the specter of here. Most of the time, the only real question is one of whether a seller is simply going to walk away, or actively help the buyer in some way as they transition into making this enterprise their own business.
• And if a seller is willing to help a buyer to retain a significant percentage of their established, repeat business clientele, and if that type of repeat business is crucial to the business and its success, the question that I raise here is what would that be worth to the buyer, and how might it be negotiated and agreed to between buyer and seller?

What can a small business, and particularly a small professional practice owner do as they move on, that would help here? One obvious answer is to refrain from negative or belittling commentary as to how a successor in this business enterprise would meet customer and client needs. But what else can they do that would both smooth a transition where a new owner takes over, and maximize the value of this enterprise as it is sold and bought?

• The simplest and often most effective answer to that is that they write a letter to their clientele, that goes out to everyone who they have worked with on a regular, recurring basis and in fact to all of their clients who they can reach who they have done business with over the past X number of years. As a basic answer to what X means here, consider 5 years, though the specific type of business practice in question might suggest a different most-reasonable number there. And this letter would both announce their retirement and favorably, positively introduce the new practice owner, citing their professional credentials and experience if nothing else.
• Note: this point of discussion and its issues need not and in most cases would not apply to businesses that primarily have walk-in customers who select where to go with their purchasing needs primarily on the basis of location. So it would not apply to buying out a small hardware or convenience store. But it can be of make-or-break consequence for a primarily repeat-business professional practice such as a small tax accounting firm with its individual and family accounts, and its small business accounts.
• Beyond this letter writing option, a seller can sometimes offer real value by offering insight into specific clients and customers and their preferences and needs, that would help a new business owner in working with them, but that would not be found in the professional practice’s records. This might begin before a new owner-professional starts working at what is now their own business, and it might continue with at least occasional as-needed informational support for some months after day one under new ownership. (As a possible caveat here, it is important that both seller and buyer act within the constraints of any applicable confidentiality laws in place here.) My point is that a prior long-term owner of a business would in many cases hold information that a new business owner would find of value, and sharing this can become one of the selling points and sources of value offered, as holding particular value as the new owner gets up to speed in their new business.

I raise the issues and questions discussed in this posting, because experience has shown me how they can become important, at least situationally, and even dramatically so. But more than that, I raise them here as a working example of how a single, simple cookie-cutter, one pattern fits all checklist of issues and priorities is not necessarily going to cover all necessary ground, and for either buyer or seller, and for all possible scenarios when selling and buying out a small business or professional practice. And with that in mind, I finish this posting by posing a more general point of observation with accompanying questions:

• I in effect raised a single, special-case due diligence question here in this posting, and as point three of my Part 24 of this series. Whether or not this one is applicable in the specific case of other types of business or professional practice sale, are there other add-on questions that would be for them? If so, what are they?
• Think through what you need to ask and what you need to come to agreement on between buyer and seller. And think through possible approaches for resolving those issues and questions and be prepared to negotiate resolutions to them.

I have already delved into the fourth to-address point initially raised in Part 24:

• “And there, it is important that both the buyer and seller come to mutual agreement as to what anything like “transition period” means here, as well as reaching mutual agreement as to what is actually going to be sold and bought. Both ‘what’ and ‘under what terms’ are important here, and if there are disagreements or misunderstandings for either of them, the issues of ‘for how much’ can almost become moot by comparison.”

I am going to continue this discussion in a next series installment where I will take on the fifth to-address point initially raised there:

• The issues of seller disclosures here, and the need to come to agreement with buyers on them. What has to be disclosed? What ethically should be disclosed? And preparing for and dealing with these issues during negotiations with potential buyers, is an area of discussion that has to be included here too.

Meanwhile, you can find this and related postings at my Guide to Effective Job Search and Career Development – 3 and at the first directory page and second, continuation page to this Guide.

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