- Why seller relations are integral to a business’ success.
- How to create a “philosophical reset” to manage the transition from competitors to co-workers.
- Why you should identify the values and anti-values of the seller.
- How to deal with contentious sellers.
The relationship between business buyers and business sellers is an evolving one.
In the earliest stages, interactions will usually be cordial and professional. When negotiations begin, the dynamic can range from contentious to outright hostile, depending on the course of events. Finally, when the negotiations are complete and the deal is closed, a new relationship emerges – one that can be particularly difficult to navigate.
As you transition from buying a business to becoming a business owner, it can be difficult to keep track of everything. We’ve talked about how you should “download the brain” of the outgoing owner to learn as much as possible about what they do. That’s because the buyer should never rely on the seller to teach them about the company. The responsibility for learning as much as they can falls on the buyer.
But before that process even begins, you need to define how long that person will stay with the business after the sale closes. More importantly, you need to maintain a positive interaction with that person for the duration of the relationship.
The exact amount of time the seller will stick around varies between deals and that length must be defined during the negotiation process.
Why You Should Maintain A Positive Relationship With The Seller
Being the owner of a new business is hard enough. Add to that the fact that the business has already existed for some years and the employees already have a way of doing things, making changes can seem impossible.
The simple fact is, many people are resistant to change, even when it’s for the better. Having the seller on board for this transition period will help you sell any changes to the existing employees.
There’s also the fact that you don’t know what you don’t know. Imagine you’re the new owner of a plumbing company, you’ve been working there for months and you’ve done your homework. You know how this business operates from top to bottom. But one day, something unexpected happens: a customer reports that a newly installed 40-gallon gas water heater leaks at the relief valve joint. After the technician checks the joint to see where the leak is coming from, it turns out it originates from the weld in the heater. This type of problem pops up once in 30 years and is the type of thing only an experienced plumber would know how to handle.
Having the seller there to help troubleshoot this problem with the distributors can save you time, and money, and gain you experience faster than you would if you had to do it on your own.
Shifting The Relationship
However, some things will hinder that relationship, especially around closing time. After all, by that point you’ve spent months poring over the fine print of legally binding documents, arguing over everything from minute details like who keeps the company lawnmower to immense issues like the actual price of the business.
This negotiation process can create an incredibly contentious relationship. It’s even worse when egos become involved. After all, buyers can get excited while sellers are often attached to doing things their way.
In order to change the timbre of what is, in essence, a competitive relationship into one of mutual trust and admiration, you need a spiritual or philosophical reset.
To change the timbre of what is, in essence, a competitive relationship into one of mutual trust and admiration, you need a spiritual or philosophical reset.
“To work on the relationship, I would say the first thing is to take the seller out for dinner to celebrate the deal's closing,” explains Acquira CEO Hayden Miyamoto. “While there, focus on saying ‘that stage is behind us now. The next stage is taking care of the people in the company.’”
Once you agree that taking care of the business and the people who work there is paramount, you can begin crafting a plan to take care of everyone.
“Don't worry about 100 or 90 days,” says Hayden. “Just think about a 30-day plan.”
“The first focus is to make sure that everything that the seller is doing, someone else in the company is being taught to do,” he continues. “You don't want anything in the company that only one person knows how to do. So ideally, you want at least two people to know how to do everything.”
Maintaining The Relationship
It’s more than agreeing to work together for the company's betterment. You also need to work to maintain that positive relationship. This can be difficult if the buyer and seller have different approaches to their work.
“You need to ask yourself, ‘How do I want the seller to feel about me as the buyer?’” explains Hayden. “For me, I want them to feel that I'm a sponge because I'm not an expert. But I want them to see that I have the energy that they used to have in their youth, that I have the intelligence that they have, that I'm humble, and kind. And that I'm going to learn because I want them to feel that this business, this legacy, will continue under this new ownership.”
Once you’ve identified how you want the owner to feel about you, you should also consider how you don’t want them to feel about you. This can help you avoid behaving in certain ways that might turn them off.
Hayden has been involved in over 30 acquisitions, and in that time he has encountered many different types of personalities. He thinks back fondly on one HVAC company he was involved in integrating.
“With that seller, it was very clear what his values were. He valued hard work, he valued honesty, he valued quality, and he valued taking care of people,” Hayden shares. “But his way of taking care of people was in the way that he knew how to do things, which was making sure they had lots of work to do and good benefits. So with him, I knew if I showed any of his anti-values, that could be the start of the bad relationship. So I knew I couldn't be lazy. If he started at 6 am, I was there at 6 am.”
As Hayden explains, it’s important to identify the seller’s values and anti-values. Then, you must live up to those values and show that you share them.
|Taking care of people
|Worried more about the business than the employees
Dealing With A Contentious Seller
Of course, not all buyer-seller relationships can transition into positive interactions. If you work with a seller whose values differ distinctly from yours, you must download their brain as fast as possible and accelerate the transition.
Still, sometimes you’ll find yourself dealing with a contentious seller through no fault of your own. Take, for example, the case of Acquisition Entrepreneur Tania Rempert.
After completing her training with Acquira, Tania closed her business in September 2021. The relationship with the seller was less than positive.
“I would not be his friend or his business partner ever,” Tania shared.
“I talked to the seller a lot but he did not want to let the employees know that he was selling the business at that point because he didn't want them to get scared and leave,” she said. “By the time I showed up that last week of September, the employees had a long list of issues.”
During the negotiations, Tania used an Acquira-vetted lawyer to handle her side of the deal. That lawyer had extensive acquisition experience. But the lawyer for the seller was a general business attorney who, in Tania’s estimation, was not completely forthcoming with the seller.
This issue became especially apparent with the APA (Asset Purchase Agreement). Under the terms of the Letter of Intent (LOI) that Tania originally presented, she set out that she would be using SBA loans to pay for the business. As part of that loan agreement, the seller had to hold 10% of the loan himself until the SBA loan is repaid.
“But when it came time to sign the APA he said, ‘Oh, I didn't know. If I had known that, I never would have signed it,’” explained Tania. That led them to create a second agreement stipulating that, after two years, Tania would ask the bank if she could pay the seller back early.
“It just seemed like something that a lawyer might have reviewed with him, but also he should have just read it before signing it.”
In cases like this, where the seller may have a bad relationship with the employees or simply prevent you from making changes or getting work done, you may need to take drastic action.
To prevent situations like that, you need to maintain the ability to fire them at any time without consequence, explains Hayden.
“You also need to make sure that there's a non-compete and non-solicit,” he says. “All of which would be handled in the negotiation process. So negotiating the transition ahead of time is important.”
“I Sold My Business, Now What?”: How Long Should The Seller Stay Around?
The duration of time that the seller will remain with the business after closing the deal must be addressed during negotiations. During that process, you will also negotiate how much of a stake the seller will maintain in the company. We typically recommend that Acquisition Entrepreneurs push for the seller to maintain zero or very little stake in the company.
When it comes to how long they should stick around, we typically say they should stay for six to 12 months. That allows you enough time to fully download their brain and assign their responsibilities to other people within the business.
The seller’s daily role should also decrease over time. In the beginning, they’ll likely be there every day. But as time goes on and their normal tasks are delegated to others, they will come in less and less each week until, eventually, they’re probably only showing up one day a week at most.
Under the terms of certain lenders – specifically SBA – the seller actually isn’t allowed to stay on board for more than a year to prevent cases of fraud.
More to the point, having the seller stick around for longer than 12 months can hinder the company. You want the business to be able to grow under its own weight, and having someone around who may slow them down is something you should avoid.
Integrators: The Benefit Of A Third Party
One thing that should be clear from all of this discussion is that seller relations are difficult. It’s just as common to hear complete horror stories as it is to hear about relationships that ended positively.
For this reason, having a third party to help navigate the transition between owners can be a very powerful tool.
Under our ACE Framework, an Integrator is an external consultant who oversees the integration of a business. They manage all of the users and their Framework integration while ensuring buy-in from all stakeholders.
For the buyer, having someone who is more detached from the business can be useful. The Integrator can serve as either a bad guy or a cheerleader depending on the circumstance.
Commonly, a buyer will come to a business looking to make improvements, and as a result of this employees can sometimes cast the seller as a villain (as was the case with Tania Rempert). That can lead to a contentious relationship when you really want a balanced and friendly one. Having a third party who can serve as an objective outsider can help solve this issue before it arises.
Furthermore, while you may still be in the process of negotiating the terms of the LOI or APA, having an ACE Integrator can be very helpful for balancing personalities and forging a stronger relationship between buyer and seller.
This third party often helps ensure that the deal truly closes by helping all parties navigate the relationship as buyer and seller transition between a somewhat combative relationship, where you're on opposite sides of a negotiation, into something that resembles more of a partnership.
When buying a small business – or a business of any size, for that matter – there is no blueprint for maintaining a positive relationship with the seller. It’s more about creating a philosophical reset to help smooth the transition.
Being attentive to the seller’s personality and creating a plan will help you navigate the difficult waters between negotiators and co-workers.
This transition can be especially interesting in the home services industry where you find a lot of “old school” personalities—the type of people who don’t want to sit around and talk about their feelings.
The simple fact is, you won’t be able to put this transition into a spreadsheet and know how it will end up. You’ll have to feel your way through the process and work hard to maintain that relationship.
Have you had any particularly contentious business relationships? Let us know about them in the comments below.
If you’re interested in pursuing your own business journey, it begins with our Accelerator Program. To learn how we can help you find and buy a business within seven months, schedule a call with us now; someone will be in touch within 24 hours.
- The business seller can help you discover what you don’t know.
- It’s not just about identifying the seller’s values – identify their anti-values as well.
- In the event of a contentious seller, “download their brain” as fast as possible and accelerate the transition.
- The business seller should not remain with the business for over a year.
- The business seller’s role should diminish over time.
- A third-party integrator can help manage the transition between owners.
- The ACE Framework is designed to help scale a business and turn it into a management-run company.
Acquira specializes in seamless business succession and acquisition. We guide entrepreneurs in acquiring businesses and investing in their growth and success. Our focus is on creating a lasting, positive impact for owners, employees, and the community through each transition.