Ok, what is a transition period?
Good questions, let’s start with the basics.
When you buy a business it is typical that you ask the seller to stay on for a period of time to help you transition the business to you. This could include introducing you to employees, customers, or suppliers, teaching you the software they use, or just showing you how things work.
As a buyer, this is your chance to ask all the questions you have about how to run the business. This is referred to as the transition period.
Why do I need a transition period after I buy a business?
Another good question. I have bought businesses where I needed a transition period, and other times I did not because I understood the business.
No matter what, I always ask for a business transition period just in case something comes up that I can not figure out on my own. Think of it as training wheels on a bike, you might just need it.
Hopefully, you have developed a good relationship with the seller and they are interested in seeing you succeed and they are willing to help. I say hopefully because sometimes a seller is kind of a pain in the rear and you have a bad relationship.
Ok, enough talking, how long of a transition period should I ask for?
Alright, here it comes, the good part. I would always ask for at least one month.
This is actually part of the deal negotiation points. People always think that price is what you negotiate about, nope, there are many things that can come up.
I once had a seller who wanted to specify a total number of hours they would be available, and only by phone, and only during business hours Monday through Friday.
Expert Tip – When you get an SBA loan, the seller can only assist in the business for up to one year.
Remember when I mentioned a seller who turned out to be a pain, well it was this guy. He actually kept an excel spreadsheet of how long each phone call or meeting lasted.
How to structure a transition period
- Be Specific – In your closing documents make sure there is a transition agreement that outlines exactly how long the transition will last when they will be available during the day/weekends and what they are willing to help you with.
- Early Termination – Make it clear that you have the right to end the transition period early. Sometimes a seller likes to hang around after the sale like a stalker.
- Permission – Related to the previous point, you need to make sure that after you buy the business, the seller needs your permission to come back and visit the office. Some people just can’t let go and will like to “pop in to say Hi”. You want to limit this because it can become awkward.
- Who You Work With – If the sellers are husband and wife, partners, or multiple people make sure you identify who is going to do the transition. I made this mistake once.
- Figure it Out – Always try and figure something out on your own before calling the seller. You always learn more when you figure it out yourself.
- Warning Sign – Be careful if a seller tells you they are going to move out of town after the sale. I had a seller move to another country and they were not very responsive.
Go deeper on buying a business
If you want to learn more about what to do during a transition period as well as other important topics, we suggest you take a look at A Practical Guide to Buying a Business.
This book provides a start-to-finish look at the business purchase process including some sample forms and checklists.
We cover many of these topics, but it is generally a good idea to get as much information as possible from different sources because there are different opinions on how to do things. It is worth the read.
Click on the book image to learn more.
The bottom line on business purchase transition periods
Remember, the transition is for you – the person who bought the business, so make sure you make the most of it. Ask for as much time as you need for the transition, but at minimum negotiate for two weeks unpaid.
Be clear on who is going to do the transition and under what timing. Be nice to the seller after the business is sold because you never know if you will need them to do you a favor later.
Go take control of your future!
