What happens after the champagne is popped?
Buying a business is an exciting time. The process itself has many different layers and aspects to it. You need to set your goals and objectives first. What is it you are looking to achieve and why? Then comes defining, identifying, and courting your ideal targets. Once you’ve found your match, the focus shifts into performing more due diligence and hammering out the agreements, financing, and other aspects needed for a successful close of the transaction.
Each step along the way demands time, experience, expertise, and a bucketful of patience and perseverance. But then the transaction closes, the champagne bottles pop, and life is good, right?
Well, yes, life is good as a matter of speaking. But your “real work” has just begun. The real work of buying a business starts when you begin planning and preparing for taking on the actual responsibility for running the business. Integrating the new company into other operations, opportunities, and markets is complex. If you’ve waited to put down your champagne glass to get those preparations underway, you’re going to be in a world of hurt.
You want to begin earning the return on your investment in your new business investment as quickly as possible after the ink dries. To make that happen, you need to have planned for the goals and activities for:
- “Day one”
- First 90–100 days
- Year one (and beyond)
Today’s article launches a series on the post-close aspects of buying a company.
The initial days after the close of the transaction are intense. There are many logistical aspects and communication components that demand attention, finesse, and care. Today, we will highlight just three of the mechanical/logistical aspects. (The next post will highlight communication considerations.)
To put day one into perspective, think about the last time you moved and then multiply that 100-fold in terms of the complexities. You have to cut off the phone/internet, water, gas, and electricity at the old place and make sure it’s all turned on at the new. Assuming the transaction is an asset purchase, and most deals are, you must do this same kind of work when buying a company, so services and billings are transferred to the new company.
In asset deals, you must also consider the transfer of:
- Insurance — It’s all about mitigating risk and this is a critical area for transition. The timing cutoff is sensitive. Gaps could have catastrophic and costly implications.
- The application process for business insurance requires completion of a lot of paperwork. The process takes time to do it properly.
- Health and other wellness insurance programs currently provided by the seller need to be transitioned to what you will offer. Different rules influence how the health insurance needs to be transferred for employees’ continuity in coverage depending on the size of the employee group. You want an experienced benefits insurance advisor at your side to navigate the transition. The employees will be anxious about the acquisition to begin with. The way in which you manage their health insurance coverage will send a message about how you care about their benefit.
- Tail insurance should be negotiated in the deal so the seller purchases insurance to cover claims filed post-close for products and services delivered before the date of close.
- Information systems — The lifeblood of a business rests in its computer systems. When the systems go down, often your entire operation comes to a screeching halt. You are a new company operating on your own. Don’t assume that the seller’s systems can or should run just the way they did before close.
- First, can the license agreements transfer to you or do you have to get your own? Your review of the agreements should take place in your due diligence process so there will be a way to identify what agreements can and can’t transfer.
- Even if they can transfer, you may want to start with a clean slate, such as with the accounting, payroll, and other systems that need to be tied to a unique employer or tax ID.
- What if you don’t like the software tools that are being used in the business and want to change them? Sometimes it’s not realistic to prepare for and cut over to the buyer’s preferred software on day one. What are you going to do in the meantime?
- What systems will be used to pay employees and vendors, invoice sales, deposit payments, and handle production and shipping? Essentially, you need to plan and vet the technology that will allow you to operate on day one and forward.
- Employee logistics — In an asset deal, the seller terminates and you hire all the employees on day one. This is the employees’ first experience with their new ownership. Anxiety will be high. Professionalism and preparation will go a long way to making a lasting impression.
- Your hiring practices and procedures should be mapped out ahead of time. Plan what will be communicated, by whom, and when over the course of the first day, week, and month.
- New hiring documentation has evolved over time. There are specific things that need to take place to comply federal and state employment practices. Understand what’s required of employers for proper documentation and reporting.
- New hire packets should be provided to your “new” employees, including offer letters, position descriptions, company handbooks, etc. Plan what group and one-on-one meetings you’ll conduct to facilitate the transition for employees, as well as document the actual change of employment.
- Benefit enrollment must be handled appropriately and accurately to ensure continuity of coverage for the employees on day one. Again, different health plans have different requirements so engage an insurance professional to assist you.
Admittedly, these three areas only scratch the surface of the mechanical and logistical aspects of taking over a business. Hopefully this highlights the importance of preparing and planning for what happens after you put down the champagne glass. In my next post, we will cover the critical communication components for day one.
Do you know what the state of owner readiness is in the state of Wisconsin? The Wisconsin Chapter of the Exit Planning Institute just launched its State of Owner Readiness Survey!
If you are a business owner, click Wisconsin State of Owner Readiness Survey to take the survey now! (It’ll take less than 15 minutes and give you some great food for thought.)
Feel free to forward the blog/link to all the business owners you know and ask them to participate too. Results will be shared in November!
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