Once the sale of a business is complete, the closing documents have been signed, and you leave the closing agent's office, the Familiarization period begins. This is the time when buyer and seller work closely together to ensure a smooth handover from one owner to the next. What this handover looks like will vary from business to business, and greatly depend on the parties involved.
Purpose of Familiarization
This is the time that the buyer learns exactly how to run the business, and the seller is there to train them and show the new owner how it’s all done. It is also the time that the buyer would be introduced to the employees, and introductions would be made by the seller to their clients and suppliers. Everything done here is to ensure the smoothest transition as possible from the seller to the buyer, without interrupting or hindering the operation of the business. What the buyer needs to learn from the seller will vastly depend on the business being purchased. Familiarization does not mean that the seller is employed by the buyer, the seller should not be expected to work in the business, the specific activities that the seller does during this time should be 100% related to teaching the buyer how to take over from them.
Relationship of Buyer and Seller
Buyer and seller are working very closely together during Familiarization, so it is of optimum importance to make sure that the relationship between buyer and seller stays positive during the transaction. Elements of a business sale, such as price or contract terms negotiation can get heated, and that’s why it’s important to have a Business Broker in the middle to act as a buffer between the two parties. Also, it’s not a question of if a bump in the road will come during the contract to close process, it’s a matter of when it will come up. Having a Business Broker to help both parties over those bumps as smoothly as possible is absolutely key to buyer and seller maintaining a good relationship during the entire transaction, and more importantly, after the closing.
How Long Is Familiarization?
How long Familiarization lasts is negotiable at the time of an offer. It will be included in the standard contract. What is customary for an average-sized small business is 2 weeks (excluding Sundays and Holidays). These two weeks don’t have to be consecutive, it can be broken down hourly or daily, whatever works best for both buyer and seller, as well as what is necessary to continue a seamless running of the business. If the buyer would like additional time for handover, then often the Familiarization period can be extended, but then the seller would normally be compensated for their time. Furthermore, an Employment Contract can be drawn up between buyer and seller, during the Due Diligence period, if the seller plans to stay on with the business afterwards. Of course, many buyers and sellers decide that they don't need the full two weeks, and they are entitled to finish Familiarization, should both parties agree to do so.
How Much Does It Cost?
Usually, a seller will offer a two-week Familiarization at no cost to the buyer. Of course, this is negotiable, but normally a seller will look to the buyer to compensate them for extra time, should the buyer want more than what’s being offered as part of the contract. This cost will be down to the buyer and seller to negotiate and agree on. Any Employment Contract that is created and negotiated should reflect a reasonable salary for the job that the seller will be performing. A win-win situation for both sides will always be the best result for maintaining their positive working relationship.