Develop a plan and assemble your team to ensure your business goes to the best buyer. Establishing a clear path to acquisition early will result in a smooth transition.
Building a startup takes a great deal of work and determination. While you may have the resolve to continue via organic growth or funding rounds, there often comes a time when your best plan of action is to sell. Acquisitions offer many benefits that can change the trajectory of your business: new resources, added expertise, fresh perspectives, and access to greater capital for future development. Of course, there is also the personal return on investment for your years of hard work.
Setting up a business for an acquisition can be a challenge of its own – and laying the groundwork early often pays huge dividends. Even before considering an acquisition, you need to ensure a solid team and plan is in place to keep the company organized and accountable. Waiting until the moment you’ve decided to sell or when you’re negotiating with a potential acquirer will complicate the process. No matter your business’ size or industry, there are a few key factors to consider before beginning to work with buyers. Implementing these strategies early will set the stage for a smooth transition.
1. Build your team internally or seek outside counsel
Bringing in the right team is top priority when preparing for a sale. There are two options for assembling the right team. The first is to build one yourself during your growth phases with team members that have experience in the valuation, legal, and tax process of an acquisition. The second option is to go with outside counsel, which will have all the necessary staff in place and the knowledge to guide the process. The best path will depend on the company size and the make-up of the board.
It’s also important to consider if your business has taken investment funding rounds, such as early-stage venture capital or late-stage private equity. Those firms will have a proven strategy they follow with their portfolio companies and have resources to assist in the sale process. In general, the more investment you take along the way, the more control your investors will have in this process.
2. Ask yourself the hard questions
With your team in place, consider whether you will sell the business outright or sell only a part. Other key questions to ask yourself include: Are you getting cash up front, stock, stock with a vesting schedule, or lockout? Is employment required for you or key members of your team? Or do you all walk away on day one? What happens to your product/service/brand? What do you want out of this? To some founders, the business is as precious as a child, and the go-forward operating model is extremely important to them. To others, getting the maximum amount of cash upfront is the only motivation needed. The “right” buyer is usually the one that will maximize your return and goals.
3. Proactively prepare the financial and legal documentation
With the team and plan in place, you must now be prepared to provide full visibility into your financial and legal operations. Top-line revenue growth is the most crucial financial information to have on hand. Margins and earnings matter, but those can usually be fixed. A business that isn’t growing will not get additional investment or be attractive to buyers unless it offers something incredibly unique to the market. As a business owner, you should understand the ins and outs of your company’s financial health and be prepared to disclose that information to potential buyers.
In addition to preparing your financial teams for thorough inspections, ensure you get all your intellectual property (IP) in line. Ownership of the business IP is one of the most overlooked aspects in an acquisition. Businesses should fully own the products, software, patents, and even processes that are used regularly, or those that set it apart in the market. Getting ahead of this as early as possible is best, so consult with IP and patent experts early and often to adhere to specific state and country laws. A clear plan to protect what you are selling needs to be defined early.
4. Add value and credibility to your business with technology
The more complex your systems, the more complicated analysis becomes, and the higher the possibility that deal-killers will arise. The operational integration after a sale can also prove to be extremely difficult. Think of your business’ internal and external touchpoints – the more touchpoints, the more complex integration becomes afterward.
Having one system to run your most critical business operations is preferable to an array of disjointed, specialized platforms, which can lead to inconsistencies in reporting. Integrated business systems like Oracle NetSuite offer complete visibility into financials in real-time with unified data and streamlined operations for better accuracy. When prospective buyers come in and analyze company records, a comprehensive infrastructure will ensure everything is in the right place for an easy pull and review. Additionally, technology leaves more time for innovation by automating everyday tasks – making your company more appealing for a sale to begin with.
Ultimately, buyers will conduct due diligence, so making this process as streamlined as possible will keep deals from being postponed, or worse, falling through. While an acquisition can be complex, it is often a good next step for successful businesses to reach the next level. Assembling the right team and implementing reliable tools will ensure that any sale goes smoothly, leaving all parties satisfied and creating the most return for everyone involved.
Justin Cowan is the GVP of Strategy for Oracle NetSuite, responsible for bringing all of NetSuite’s products to high-growth customers across the HR, finance, accounting, inventory management and retail functions. He brings over 20 years of experience running all facets of software companies at an executive level, including his tenure as the founder and CEO of Light CMS, acquired by NetSuite in 2013. He holds a Bachelor of Science in Computer Science and Finance from Southern Nazarene University.