Experience with Seller Running the Business Post Close
November 06, 2024
by a searcher in Toronto, ON, Canada
Would love to chat with anyone who has experience in having the seller continue to run the business post close. For reference, it is a strategic acquisition so the business being acquired will act more like another branch or location, and less stand alone.
from Kansas State University in Salina, KS, USA
We've found it to work fine for transitionary periods. It could work for a long term solution but would take a special person. Even if they want to stay on for the foreseeable future, I typically try to communicate to them that we only expect for it to be transitionary period (maybe 6 months to a year) and then we can re-evaluate and see if it makes sense to continue after that point.
My other advice would be that it's all too easy to agree to a large salary up front when they ask for it.. I would try to be very conservative about salary expectations... On one of these that we did and it didn't work out, the seller turned employee seemed to act like he had given us the business and we were ripping him off anytime we didn't give him what he asked for.. We felt like, even though we'd purchased the business, he was still holding it ransom until we gave him whatever he wanted. Looking back, I think that he thought the situation was going to be perfect because he wouldn't have to do much and would get a paycheck forever.. Once it sunk in that he was still going to have to work hard (maybe even harder than he had been prior to selling), it got ugly pretty fast.
from University of California, Davis in United States
1- They may struggle to internalize that it's not their business anymore; some can get 'jealous' and start doing things to undermine you.
2- They just came into a windfall of money so why work that hard? And why stick around that long?
3- They may unconsciously see you as wildly wealthy (after all, the windfall of money came from you, right?) and see you as a potential source of MORE money, either through salary increases or less honest means.
This is not to say that sellers have inherent character flaws and are waiting to prey on you; it IS to say that selling something you built in your own image is a tough emotional process; I've heard brokers say just about every seller breaks down weeping at some point in the process about the idea of selling their baby. And for some, continuing to work in the business might be akin to trying to be best friends with their ex post-breakup. It creates a lot of internal conflict and doesn't bring out the best in them. So often best to have a clean break.
Of course there's exceptions. Gretchen Roberts acquired from someone who really wanted to work IN his business, not ON it. Based on her pod appearance it's going great. Someone who acquired the business themselves and is a serial entrepreneur is much less likely to struggle with the transition, too.