Ten Steps to a successful exit
Before you start
Start Early
Two years before you think you might want to exit, ask your business advisor, accountant and attorney for their recommendations on maximizing the appeal of your business to potential buyers. There are steps you can take when you first start a small business to defer taxes at the time of same and there are ways to roll gains forward. These require planning with your tax and legal advisors early in the process.
Do Some Research
Research similar deals in your industry. Compare your KPIs to companies that recently sold. Know your strengths and weaknesses compared to other similar deals.
Know the Value
Have a professional provide an opinion of value using several valuation methods. Ask them which method best suits your business and why. And know whether your business has cyclicality that may impact the valuation based on time of year or other recurring events that can positively or negatively impact the value on the day of closing.
Know the Market
Ask your advisors whether it is a buyers’ or sellers’ market and why. Become familiar with the metrics most often used when valuing transactions in your space. Is it a multiple of sales? EBITDA (which it is in most cases)? Subscribers? Assets? MRR/ARR?
Have a Clear Strategy for Valuing Unique Assets
Most business owners believe they have some asset that differentiates theirs from the crowd. Be realistic about this. Tech companies can sell for outrageous EBITDA multiples if they truly have ‘must-have’ intellectual property. In most cases, unique assets may contribute a slightly higher multiple but they do not drive the overall valuation.
First things first
Customers First
Every buyer wants to acquire a company that is demonstrably customer-centered. Work with your advisor team to ensure that you have full bandwidth to continue leading your company’s commitment to meeting customer commitments and growing revenue, product offering and other key drivers. It is our job to insulate you from as much of the deal minutiae as possible.
Don't Take Your Eye Off The Ball
We tell every business owner “Don’t take your eye off the ball”. Your job is to run the business. Our job is to run a process. Inside baseball hint: some buyers are known for their protracted processes that draw the business owner farther and farther down the rabbit trail causing business operations to diminish, decreasing the value of the deal. Your advisors will help you select the best partner, not just financially, but also in terms of certainty to close on the stated terms, including a realistic, mutually-acceptable closing date.
To Tell or Not to Tell
We tell business owners that unless your deal closes in less than a week, assume your entire team knows about it. You don’t have to tell employees everything but you do need to tell them something. Your advisors will help you put the right positive spin on the messaging, even when some employees will not be moving forward with the newco. A transition is an emotionally-charged event – be prepared to do some hand-holding with a few employees, the ones that find stress in, well, everything.
Clear Lines of Reporting
Designate specific employees to respond to each piece of due diligence and designate delivery dates for each. Collate due diligence documents in a central location (cloud server, typically) and review them before they are released to your advisors and then to the buyer. Ask your lead advisor to show how they have indexed your due diligence materials so that the information is easy for the buyer to access. And your advisors should have a weekly status update with the buyer - this way expectations can be shared by both sides and perceived issues can be effectively resolved. An email recap with deliverables, dates and responsible parties is a good idea after each weekly meeting.
Deal Fatigue
Deal fatigue happens in most deals. It seems like the due diligence has no end or that you have responded to specific requests multiple times. Let your advisors know when you are feeling deal fatigue. We will take some of the load off you. And never think “I just want this over with – I will take whatever they will give if we can just close now”.
Plus One
The most successful acquisitions end up delighting the employees who transition to the newco by building in small rewards after closing. You may need to negotiate a pool for incentives post-closing in the earliest stages of the process, the LOI or term sheet step, and this will reap enormous benefits post-closing, particularly if you retain a piece of the new entity and get a second bite at the apple. Post-closing integration planning done before the actual closing is a process that also ensures a smooth transition with minimal loss of traction. In our experience, most acquirers are well versed in this part of the deal – they don’t leave it up to chance, it is a process.
WAIT!! What about the actual closing?!
If we do the 10+1 well, closing is a natural, organic part of the process. There are no surprises. We simply agree on a closing date, spend a week preparing (read: negotiating – everything is a negotiation) the closing docs, then close. Find a steady, methodical, calm, experienced professional to lead your process and you will feel much more confident as you experience what will probably be the largest financial transaction of your life.
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