Here are my 5 tips for how to be ready. You can start working on these now.
1. Emotional readiness
It’s your baby, we get it! But being all emotional when you’re up against M&A tiger sharks can get you killed. You need a clear picture of what you want to get out of this deal – and that can mean working through a retirement plan or a personal financial plan (with a professional) so that the post-sale picture for you is crystal clear.
Can the company run without you? If not, you can’t sell it for a good price, it’s that simple. Buyers will be looking for top quality people at all levels so make sure you have proper employment contracts in place covering ownership of IP and other common clauses, otherwise that leaves liabilities for the buyer (which kills deals).
Buyers want to see clean and efficient operations. They want to see consistent and reliable sales/marketing. They want to see standards – if it’s not ISO then at least have standard operating procedures (SOP). Make sure you have some diverse revenue streams as well, and not focusing too much on a handful of big customers.
4. Corporate Governance
Contracts, contracts, contracts – with key suppliers and customers. Good policy manuals demonstrate a strong culture of building value and protecting against risk.
5. Finance and Accounting
You need accountant prepared financial statements that are up-to-date and squeaky clean (everything reported at fair market value, no hidden personal expenses or perks). You need a demonstrated ability to make forecasts and hit those numbers and you need to show efficient use of working capital.
Who to sell to?
Who you sell to will ultimately determine the price you get for the business. There are three types of buyers:
- Individuals, often former founders themselves.
- Institutional buyers like VC and Private Equity
- Three Strategic buyers, often the big companies in your market who want to add your solution to their offering and gain synergies. You’ll get the highest price and best terms from Strategic buyers. So start talking with Strategic Buyers as soon as possible – identify who are the people at the company responsible for M&A activities and say hello.