Anytime you buy a business you want the transaction and the transition to go as smoothly as possible. There are lots of relationships to manage, and even after a thorough due diligence process, there are going to be surprises and questions.
When this happens, it’s nice to have the previous owner around.
HVAC business broker, Patrick Lange says it should be part of every sales agreement.
“There is no question, it’s best to have the previous owner involved in the transition. The perfect scenario is to tell employees about the sale after the deal closes. I recommend informing your team the same day or no later than the day after. Call everyone in for the meeting. The previous owner should begin the conversation and explain the sequence of events and reasons for selling the company. The narrative should go something like this:
‘As you know, I’ve had my eye on retirement for some time. Rather than me just shutting the company down and eliminating your jobs, I was searching for a new owner that shared our values, ambitions, and integrity. I’m pleased to announce (new owner.)
I care about you and that’s why I’m sticking around for a while so that we have a smooth transition. Please allow the new owners an opportunity to earn your trust and respect.’
What’s not so clear is how long the previous owner should stay.
Lange recommends setting some milestones for the transition. It might be meeting the largest customers, having lunch with suppliers, and meeting with employees individually.
After this is accomplished and there is a firm grasp on operations, there is little reason for the previous owner to show up for work.
What could change things is the experience of the buyer. If the buyer is an industry novice without their own license, it would be in their best interest to structure a longer transition plan. Conversely, if the buyer is a larger company with solid systems and acquisition experience, they may not need the previous owner beyond the initial meeting with employees.
Regardless, goals and milestones should be clearly understood between the parties.
Remember, the previous owner built the business to the best of their ability. They didn’t grow further because of the owner’s skill, management style, or financial acumen. It’s unrealistic to keep them long-term and expect better performance because you already have seen their body of work.
Lange says to remember you’re the boss. You don’t want to keep the previous owner too long where they slide into old habits and employees are coming to them for decisions.
I’ve seen these transitions done a dozen ways. What works best is when the new owner keeps the previous owner on for 30 days with 2 options to renew at 30 days each. However, in no circumstance should the agreement exceed 90 days.
Without using the “option to renew” language, you run the risk of having to fire the previous owner. Doing that could cause a human resource problem with your staff and ruin relationships. You don’t want to get the reputation that you mistreat people.
Lastly, have a plan. The previous owner has institutional knowledge that has to be passed along, but it shouldn’t take long to have all you need to move forward with your new company.
About Patrick Lange
Patrick Lange is an experienced HVAC-specific business broker with Business Modification Group based in Horseshoe Beach, Florida. He has a unique background in financial planning and has even owned an HVAC business himself. This makes him well suited to working with some of the most successful HVAC business owners in the country. Specializing in companies with 1-10 million dollars in revenue, he maintains a network of buyers and sellers in the industry. He has sold more HVAC businesses than any other broker in the United States over the last 12 months and is currently the Vice President of the Business Brokers of Florida (North Florida District.)