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Hanging AroundA...

Hanging Around

As our economy has began it's recovery process,  many businesses are going through a succession process or are currently trying to sell. From a purchasers perspective, consideration should be given to the seller's management and staff. Often a new broom approach is used to sweep  everyone clean - but in business,  not everyone should be discarded.  Previous owners and senior management are often asked to stay on as they offer a blend of new and old which can be contentious or cost-effective.

Keeping senior management on is an approach which offers benefits to both the new owner and the person who staying on. For the former, it provides access for a much needed level of experience as the previous owner has a wealth of knowledge on "how to grow the business best". For the Latter, it offers the seller continuous employment, with a tie to the business they created and a significantly reduced level of stress.

Obviously, from a purchaser's perspective growth is always a main focus, and growth is important. Typically, within the first three years after a corporation has been acquired, there is a 30% drop in sales and revenues. Keeping a key  player means a more successful  transition for a buyer.

Having someone around who knows the business well gives the new owner a chance to get their feet wet under the assistance of someone who knows the operations. This can greatly reduce the learning curve. Additionally, a new owner's stress level can be reduced by knowing that the have a great resource person close at hand. They will be also provide a great introduction for the new owner to all customers and suppliers.

Additional intangible benefits include the goodwill that will extend to any other employees who remain. Having the same senior person provides them with continuity and a person they know while they adjust to the new owner.

From the sellers perspective, often the sales agreement requires a down payment, with the remaining balance paid out of future years. The sales agreement may contain clauses that the net payout is tied to client retention or gross sales.  By staying on as an employee, past owners have a greater ability to impact client retention and gross sales to ensure they receive their full balance of their sales agreement. 

In many cases, saying goodbye to a business is extremely hard. Transitioning out of a business for many sellers provides them with the opportunity to adjust to the changes that have occurred.

Given the level of complexities and emotions associated with the sale of a business it is no wonder there often are problems. There needs to be a clear exit plan.  The purchase and sales agreement often defines timelines with two key factors: the previous owners plans for the future  and the purpose for the overlap. Both the new owner and previous owner should place firmly in their mind the goals that need to be accomplished during that time, and they  then they should focus on completing those tas

As a final thought remember that as a purchaser of a business you maybe acquiring future liabilities depending on how the acquisition occurs.  If for example, the purchase is done as a share acquisition, the purchaser is assuming the employees entitlement for vacation pay. That is to say that long standing employees, who have worked their way up to three or four weeks of vacation will still have that entitlement after the acquisition. This entitlement is an added annual cost that needs to be considered. Additionally these same employees would be entitled to a greater severance package on termination. Neither of these are applicable in an instance where there is simply an asset purchase. 

Obviously a purchase of a business is extremely complicated and requires a great deal of thought and planning. To help simplify your acquisition, contact an Accountant at Ascend Financial and discuss the same with your legal counsel. Please note  that this article touches only a few aspect and isn't meant to apply to everyones situation.  

Hanging AroundA...
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Saturday, 19 June 2021