Checklist for Transitioning a Business to New Ownership
Transitioning ownership of the business is the final phase of the business selling process. The deal is closed, the purchase and sale agreement has been signed and money has been passed from buyer to seller. The next step is to close the loop on a few final actions so the new owner can assume control of business operations.
What needs to be transferred to the new owner after a business is sold?
Before the owner says their final good-bye and disappears into the sunset, they need to turn over all pertinent information necessary for the day-to-day operations of the business, such as:
- Alarm codes
- Computer, software and online access codes and passwords
- Safe combinations
- Client list
- Supplier, vendor and distributor lists
- Keys to building, vehicles and file cabinets
- Equipment operating manuals
- Personal contact information
Does the business entity need to be dissolved after a business is sold?
If the business was structured as either a corporation or LLC, then the business entity needs to be dissolved. Here’s what the owner must do to dissolve the business entity:
- Meet with board members or partners and pass resolution to dissolve the business
- Notify IRS, using form 966
- File articles of dissolution with state where business was formed
What other steps needs to be taken to transfer or close a business?
With the assistance of an attorney, the former owner should complete the following steps in order to cease business operations. If the business was formed as a sole proprietorship, it will close automatically once these steps are completed:
- Notify contacts for all contracts assigned or assumed by buyer
- Notify creditors to explain how bills will be paid (by you or new buyer)
- Cancel business permits or licenses, assumed business names and other registrations
- Give cancellation notice on your lease (if its transferred to the new buyer)
- Cancel insurance policies not being assumed by new buyer
- Pay bills off and collect accounts receivable not being assumed by buyer
- Distribute assets remaining in your business after the sale closing
- Close employer ID number with the IRS
- Close business line of credit
- Pay final wages to employees, plus payroll taxes and fees
- File necessary tax forms using the IRS “Closing a Business Checklist”.
Should the seller stay on board after the business is sold?
In most business for sale transactions, the seller agrees to stay on board for at least a month to show the new owner the ropes and answer any questions that may arise. This is usually negotiated and agreed upon in the terms of purchase and sale agreement.
When the purchase is seller financed and the buyer agrees to pay off a portion of the business over time, the seller has a vested interest in a successful transition. They may take on an advisory role in the business for an extended period of time. Take advantage of the seller’s knowledge, skills and expertise as much as possible.
How do you motivate employees to stay after the business is sold?
Most new owners heavily rely upon key veteran employees to keep the business running smoothly. Take the opportunity to set up a meeting with all your new employees. Introduce yourself and let them know how much you appreciate the great job they’re doing. This is also a good opportunity to give them a good reason to stay on board by offering them incentive plans, such as bonuses or profit sharing plans. This will also motivate them to have a vested interest in the performance of the company.
This is a great opportunity to connect with your customers and share the good news. The more information you provide, the more you will earn customers’ trust and loyalty. This is also an opportunity to bring back old customers and offer them something new. If you own a restaurant, announce new menu items. If you own a retail store, announce new products. You can share the good news through an online marketing campaign or a grand reopening celebration.
Your attorney and broker should guide you through this final post-closing process. At this point the deal is complete! You can now notify your employees and make an announcement to your customers, suppliers and the general public. Congratulations!