Advice on Owner/Operator Transition Services Agreement

August 30, 2023

by a searcher from University of Pennsylvania - The Wharton School in Brooklyn, NY, USA

I'm in the 6th or 7th inning of an sba-funded deal, and I'd be taking over from an owner/operator. It's been his livelihood for the last 30+ years and recently there have been some delays because of the owner having 2nd thoughts. He's particular about how he wants things run. He wants to be paid while staying on for 6-12 months but I do believe he'd genuinely try his best to pass on knowledge.

The transition/training plan is not something I've had a lot of experience with ... does anyone have advice on how to approach the seller/operator, with a plan, particularly on how to define his role and authority in a respectful way?

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Reply by a searcher
from Texas A&M University in Dallas, TX, USA

I have no experience here to be transparent, but I can provide what I have heard from others. As you already know, being seen as the 'owner' and executive leader by the team is so important in the early stages of a transition. Navigating the handoff is delicate, but in order to not be seen as 'challenging' the seller I might recommend you 'appeal to a higher authority.' Maybe bring your banker into the situation and give an excuse that your lender would like to see a transition plan in six months with a handoff in leadership roles in 3. Maybe the excuse that this is a non-standard loan would necessitate a more structured process from the bank for their own peace of mind would be sufficient. This appeal to the subconscious might be enough to dislodge the seller from any entrenched positions on the transition process. A simple 'because' statement goes a long way... Two books I might recommend would be 'Never Split the Difference' by Chris Voss and 'Thinking Fast and Slow' (first half on heuristics) by Daniel Kahneman.

Reply by a searcher
from Northwestern University in Chicago, IL, USA

I'd recommend a consulting agreement that outlines the key terms of his involvement (i.e. hours per week, consulting rate, roles & responsibilities, etc.). The term should be a function of his role with the business. If he skews more on the operational / administrative end of the spectrum then 3-6mo is probably fine. If he is integral to sales or the core offering (i.e. technical, clinical, engineering, etc.), then you might want him around for 9-12mo. Whatever you land on, I would also push for the option for you to auto-extend the agreement.

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