Five Blessings of Successful Transitions of Ownership

By Oliver Kotelnikov

Admit it, you’re blessed. The path of entrepreneurship is a gift, a lucky lottery ticket, and you can’t imagine being anyone other than a business owner. This humbling journey has opened many doors, created lasting relationships, provided an honest living on your own terms, and was a means of self-expression and creativity. You can map and retrace parts of the quest. Other pieces of the puzzle are less quantifiable and only fit just so. An intuitive leap here, a split-second decision there, and countless seemingly chance encounters courtesy of the universal force known as “who” luck all have changed the trajectory in untold ways. When it comes time to sell and exit, can you bottle the secret sauce of entrepreneurial success and pay your gift forward? As an experienced business broker facilitating multiple restaurant sales a year, I believe that successful transitions are a function of planning and foresight. Once agreement on the terms of the deal has been reached, buyer and seller must work together to secure the following five endorsements to ensure a smooth transfer of operations and a fluid transition at the helm.

Customers

In a restaurant generating an approximate $1.5million in annual sales with an average ticket of $40, the ongoing success of the enterprise depends on 37,500 individual decisions made by the customers. Established clientele, or the goodwill of the business, is a strong argument in support of purchasing a reputable going concern versus starting a new venture. The willingness of the clientele to continue patronizing the business is of utmost concern to the buyer. Though a close association in the mind of the consumer between the business and its owner is common, it is ultimately the value proposition of the business that keeps customers coming back. Customers will want to know that the successor has been thoughtfully selected and the foundational core values of the business will remain intact. A portion of the transition training period should be allocated to meeting and introducing the new owner to regular customers. Promoting a social event or a happy hour gathering as way to thank the clientele for their support and publicly pass the baton can be an effective way to demonstrate continuity.

Employees A business owner wears many hats but is unlikely to lead effectively or accomplish the executive task list without the support of a strong team. Employees are the backbone and the true brand ambassadors of the business. To retain the staff through the transition, ownership must pay close attention to company culture. Looking beyond the payroll reports, it is important to observe company traditions, celebrate important milestones and notable occasions and follow accepted employee recognition practices. Strategically scheduled confidential meetings between a buyer and circle of key employees in the period leading up to closing are not uncommon as a way of building rapport between the parties. Vendors & Suppliers Seasoned vendor relationships are the operational support pillars of any business. Sufficiency of inventory, logistics and delivery and contingency plans in the event of a product shortage are all facilitated by knowledgeable sales representatives. A successful business owner will be on a first name basis with the suppliers, know their communication preferences, honor payment arrangements and will have the planned absences and vacations of their sales representatives marked on their calendars. Vendors from my days as an owneroperator brought me product in their personal vehicles on weekends and holidays, attended company events and social functions and became personal friends. A thoughtful transition plan will include handshake introductions to these key players.

Landlord Most purchase-and-sale agreements are contingent on the successful assignment of the lease. In short, no lease; no deal. The purchaser of the business must earn the confidence of a commercial landlord as perspective long-term tenant. The landlord will evaluate the tenants’ relevant industry experience, financial viability, credit report, and previous history of commercial occupancy. A landlord is not obligated to grant reassignment. The seller’s endorsement of the buyer as a handpicked successor to continue the legacy of the business will go a long way. A strategic meeting between the parties is commonly facilitated by the representing broker to make introductions and begin lease reassignment negotiations.

Lender Approximately 50% of all restaurant sales are financed by the Small Business Administration’s flagship 7A program. In addition to evaluating the borrower’s financial qualifications and credit worthiness, the lender will also carefully assess the buyer’s ability to successfully operate the business. Direct relevant experience and a detailed transition plan are critical components of securing funding for the acquisition. Due diligence of the lender will assess customer and employee retention plans, lease security, vendor rapport, and the commitment of the buyer and the seller to work collaboratively to achieve a common goal.

Oliver Kotelnikov is the head of the hospitality transaction division at IBA, Pacific Northwest’s premier full-service business brokerage serving the hospitality industry since 1975 with over 4200 businesses sold. Please email your questions to oliver@ibainc.com.