Transferring the Operations of Your Business When you Sell [Transcript]
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[Plan Your Future Today]
[Laurie M. Lee, Business Attorney, CEO]
[ELEVATE Business Law, PA]
Laurie M. Lee:
So you’re thinking about selling your business and you’re trying to figure out how that actually happens. I want to talk about two things today. One is ownership transfer, transferring ownership of the business, but there’s something different and that’s the operational transfer of the business. Transferring ownership is fairly simple. You do it by documentation. The attorneys help you. You sit down at closing ownership, transfers.
The operational transfer is a little bit different. So your business operates by policies and procedures and systems. You may have employees that do specific things at certain times. They know what their job is. You have, you do things at certain times, you have certain systems and procedures. You have certain written policies, unwritten policies, the operational piece to make sure that the business keeps running effectively and profitably after the sale is what I’m talking about now. And that’s the operational transfer.
How do we make it so that the buyer can step into the seller’s shoes and take over the business is a very seamless transition. So one of the aspects to that is notifying employees of the sale. This is a big one. Sellers usually never like to notify their employees, that the businesses for sale at all, until they have a buyer at the table, and it looks like the deal’s going to go through. Sometimes, sellers notify the employees in advance. That’s not as often, but when you do notify employees, sometimes that can change behavior. After the sale happens and you notifying your employees, doing it in such a way that is positive and encouraging reassuring, make sure that the business is secure. Make sure the foundation, which are the employees stays secure and that the buyer can come in and interact with the employees on a good basis.
So notifying the employees is a big thing. How to do that, depends on the business, depends on the seller and the buyer’s personalities, depends on the employees and the culture of the firm. But it’s something that you need to think about before the sale, before closing actually happens. And you need to have a plan for that. The second thing on here is the keys. We all have keys everywhere for different things, for mailboxes, for the doors, for storage units, for storage closets, all the different keys, whether it’s parking passes. Whatever it is, it’s a good idea to have a running list of what those are, who has them, where the copies are so that we make sure that when the closing happens, the buyer gets all of those things and there’s no random keys floating out there that could become problems. The buyer wants to be assured that they have control over everything. And this is part of that.
The password list. So whether it’s an asset sale or a stock sale, there’s always going to be passwords that the buyer’s going to need to know. The Facebook pages. It could be any type of advertising. It could be vendors, software, you name it, it could be happening. So the passwords really need to be considered and make a list of those. So that it’s easy for the buyer to reference the buyers, keep in mind the buyer is going to be stepping in after closing. And they’re most likely going to be overwhelmed. Their learning curve is going to be steep. They’re going to be a little nervous. They’re learning this new business and the easier you can make it on them, the better.
Utilities is one thing. So sometimes what happens is the buyer sets up utilities in the buyer’s name. You need to make sure as a seller that you’re following up with the utility to make sure that you are completely removed from the account. Sometimes what happens is people forget the utilities altogether. And the seller is still on the account, months after the closing has happened. So make sure that this is on your radar.
Vendor accounts. Vendors can be supplies anywhere from paper supplies, from marketing agencies that you hire, public relations agencies that you hire, accountants. It could be anybody that you do business with that provides a service to you. You need to reach out to them and let them know that the sale has happened. That you are making sure that there’s a smooth transition and that you need to make sure that you introduce the buyer to those people. You need to notify the landlord. Most of the time before closing the landlord’s going to be knowing anyway, because they’re either going to need to be assigning the lease, or they’re going to be entering into a whole new lease with the buyer. But the landlord’s told in advance that this is coming. What often happens is people forget to tell the landlord that it’s happened. So once closing occurs, both of you really should reach out to the landlord and say, “Hey, closings happened, the seller needs to be taken off.” Make sure that you have the buyers contact you, the buyers phone number, address all of that so that the landlord knows who to contact, moving forward.
The account is the same. So most of the time the sellers have their own accountant. And usually when the buyer comes in, they’re going to reach out and have their own accountant as well. The importance here for the seller is to make sure you’ve told your accountant that this is coming, how it’s being structured, involve the accountant on the front end and let them know when that’s happened, because there’s some things that they need to do for tax purposes, for bookkeeping purposes and, and, and to allocate who’s responsible for what at any given day.
So once closing happens, the seller was responsible for everything before closing. The buyer is responsible for everything after closing. And so the accountant really needs to be kept into the loop. This one is also important. It’s an administrative function of notifying the Sate of Florida and the IRS that there has been a change of ownership. This can happen most often when it’s a stocker interest sale.
So you have the responsibility for keeping the State updated with accurate information about your business. If you don’t do this, there can be repercussions. So you want to make sure you notify the State as soon as possible that there has been a change, whether it’s a change of officers, whether it’s a change of managers, shareholders, members, whatever, they may be, make sure that whatever information the State has for your entity is updated after closing. Same thing with the IRS. And there might be some notice addresses that just need to be changed from the seller’s notice address to the buyer’s notice address, whatever it may be, look at it and make sure you’re updating it. Don’t let that fall through the cracks.
Taxes. This is something that is ongoing after closing. So most of the time closing does not happen on December 31st. So that the taxes are a clean break. Most of the time it’s happening throughout the year. So there’s going to have to be some accounting, some ongoing accounting with the buyer and the seller to say, who is responsible for which portion of taxes and, but how this happens. And it gets pretty complicated, but you look at the calendar year. What percentage of that calendar year was owned by the seller? What percentage was owned by the buyer? And you allocate the responsibility for taxes in that manner.
Website access. This is a funny one and email access as well. Sometimes the sellers inadvertently retain access to, like I said, social media accounts, websites, emails, and you want to make sure that the seller is taken off of that, that they don’t have access to it and the responsibility for it. And that the buyer has access to it and can go in and make it their own. Telephone numbers is another thing, while the closing documents transfer the right and ownership of the number to the buyer, you actually have to contact the phone company and make sure that they understand that that number has now been transferred as well. Sometimes you might want to update the caller ID name if that’s changing. And then once all of that’s taken care of, and the closing has happened, you need to have a plan for introducing the buyer to your clients.
This is a very important, very critical step, whether you’re selling a product or whether you sell services, the clients are the most important part of your business, except for employees, which I would argue are just as important. The clients need to know that this transition is not going to affect them, that the buyer’s going to step in the is going to provide the same quality of service, same level of satisfaction to them that the seller had. And so a good introduction, a nice warm handover is very helpful. So keeping in mind, ownership transfers, operational transfers are a little bit separate, little bit practical, common sense type list, but don’t forget them.
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