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what is a reasonable no-cost transition period?

I am in the process of purchasing a business (no experience) and do not know what a reasonable no-cost transition period should be. I've heard 1 month, 3 months and 6 months. The last broker told me a 3 month no coat transition was built into the price.

I know each purchase is unique, but I can't imagine there aren't some rules of thumb. Any advice would be appreciated.

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Answers (4)
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Loudoun County, VA

Yup, I have 18 years of IT experience in a variety of disciplines and a Phd in Systems Eng. I just need to understand the discipline and how new/existing business is developed. I ran my own business a long time ago and was too young to make it big.

I'm struggling with the what the sellers price and an offer to stay with the business for up to 3 years. What is reasonable? I'd like to have the seller for one year; they are asking for 2.8x owner benefits.

The business is probably worth $100k less than asking price... so, I've thought about giving the seller the full asking but a no-cost transition for 1 year.

I recognize these can be sliced and diced many ways. I'm trying to balance a reasonable offer and not overpaying for the business.

Dec 12, 2011
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The BAF Group LLC
MD

I feel better - not that it matters! But I am glad you clarified.

Take all you can get, from him. This sounds like it should be a win-win situation. You need to keep a good relationship with him, because of the length of time you will be together.

The only problem with having his stay aboard is that people may tend to look toward him for answers, even after you have taken over. Depending upon how he responds, it could be a good, or testy transition from him being the one in charge.

I trems of him staying and what you get for free in terms of transiitonary time, I am under the impression that the whole question is rather moot. If he is going to be there anyway, what is your concern? What am I missing?

Dec 12, 2011
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Loudoun County, VA

Don,
Thank you for your response.

The situation is I have extensive IT background, process engineering, etc but non specific to this IT business discipline. I agree this less than ideal had this opportunity been very specific to my background. I think I misspoke with I used "no experience" - what I meant was with respect to buying a business.

The owner is willing to stay on for 2-3 years and had really planned ahead to sell and transition the business.. thus there are many options.

Best regards, Jason

Dec 12, 2011
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The BAF Group LLC
MD

Jason, there are really no rules of thumb on this, other than it is usually a terribly elastic and negotiable point. It depends on the type of business, (a Gas Station will take less transition than a business-to-business service company,) the nature of the clientele, (Gas Station customers do not need to be introduced to you by the past owner, though repeat clients of the service business certainly will,) the technical nature of the business, (Gas Stations are not something that needs as much discussion as an computerized design system in a plastics manufacturing plant,) your own background, (which you say is nil; someone with line experience in the same industry might need less than you, but still may know nothing about administration of the same plant,) and I could go on and on...

The key is, how much do you really need? The more you discount your pricing offer, the less negotiable your Seller is bound to be without demanding something extra for his time. And you may want to build in an offer to pay him a consulting fee, that if you need him beyond the agreed transitional period, he will be available for consulting on an hourly or daily basis for a pre-agreed fee. (EVERYTHING needs to be offered, accepted and put into writing, as part of the total, contractual agreement.) We regularly build in such time and then a lesser fee for telephone consultation over a period of as long as a year.

If you are trying to get the Seller to give you all of the knowedge he has acquired over 30 years of operating the business, that is not going to happen. It is normally a trasitionary term, not an apprenticeship. There is a real danger with people buying businesses with "no experience", or experience in an industry they do not know and have no background. We had a Software Engineer come to us about buying an Auto Repair Shop, and we refused to sell it to him, because we thought it was a recipe for disaster. We tried to talk him into things that were more relevant to him, so in his frustration, he went to another Broker who sold him the kind of Shop he wanted. Within six months, he had shuttered the doors, because the competition lured his Mechanics away, and the Buyer not only could not turn a wrench himself, but really did not know how to hire the appropriate people to fill the vacant slots.

I am not telling you not to do what you are doing; I don't know enough about you or your acquisition to be that pushy or that arrogant - I don't care what others may say! (That was an attempt at early morning humor...) But I would suggest you be very careful.

Dec 12, 2011

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