Making the decision to sell your start-up business is not always an easy one. Although for many entrepreneurs it is a sign of success and doing so enables them to take the next step in their entrepreneurial journey.
The steps below detail how you can improve your chances of a successful business transaction and achieve the most lucrative deal possible:
1. Focus on increasing your profit
When beginning the Merger and Acquisition (M&A) process, it is important to pay particular attention to growing your net revenue and profit margins. Savvy acquirers will always focus on your EBITDA (earnings before interest, taxes, depreciation and amortisation) so it’s important you don’t make the mistake of just focusing on your top line (gross profit).
2. Get a financial audit done before it’s requested
A key part of any M&A process is the completion of a financial audit or review. Since it will always be required, you might as well get one done sooner rather than later. Having an official audit or review carried out by a respected auditing firm will help reassure potential buyers and give them increased confidence in your business’ revenue. Having the audit or review done in advance can also help you identify any potential issues and give you the chance to tighten up your financials too.
3. Ensure suspicions and potential surprises are addressed
It is absolutely crucial to ensure potential buyers are not surprised by any skeletons in your closet. The aim of due diligence is to confirm all is in order before a sale occurs, so as to ensure the parties involved are protected. You do not, therefore, want any unwanted surprises cropping up during this time.
Make sure you have addressed anything that potential buyers may find disagreeable and that you have valid (but short) explanations for any inconsistencies or issues. This isn’t about apologising though, so don’t make this process emotional. This is about being clear and concise, explaining any conflicts and problems and then moving forwards.
4. Establish a “revenue juggernaut”
As part of your business, you should set up a “revenue juggernaut” which has an aggressive monetisation strategy. This should be something that will greatly increase your multiple and so minimise the amount of risk a potential buyer might associate with buying your business. As such, they may even pay you a lot more.
Top tip: Choose software as your juggernaut and ensure it is transaction or reoccurring revenue based.
5. Ensure your 3-year projection figures are achievable
An essential part of selling your business will be to project 3 years’ of financials, however, you must be able to evidence these are achievable. Once you have started the M&A process, as well as due diligence and sales negotiations; it will become absolutely vital that you can meet these projections. Failing to do so can send out warning signals and seriously jeopardise your chances of selling. Being able to meet or exceed your projections on the other hand will be of great influence when others are valuing your business.
6. Invest in your business’ sales and growth potential
Any buyer worth their salt is going to have a very close look at your business’ growth potential. This means you should be investing time both before and during the M&A process to increase your sales efforts. Keep in mind this might mean you have to hire more sales reps, as well as increase your efforts and investments in growth initiatives.
7. Define your strengths, weaknesses, opportunities and threats (SWOT)
Another important step in preparing your business for sale is to undertake a SWOT analysis. This analysis gives you the advantage when it comes to negotiating the best price for your business. Buyers will try to poke as many holes in your business as possible since they are, of course, looking to get your business for the lowest possible price. Having done your SWOT analysis, you will be in good shape to defend the areas of your business that are weaker than others, identify the threats and opportunities and focus on your business’ strengths.
8. Increasing the profile of your business
Increasing your business’ visibility is key to attracting the right kind of buyer. It is therefore crucial, that you spend time, before and during the M&A process, to raise your profile using as many opportunities as possible. This may include any number of offline and online opportunities, such as:
– Trade show appearances
– Utilising guest speaking opportunities
– Guest blogging
– Publishing press releases with interesting news and company data such as promoting new services and/ or products and detailing the business’ latest achievements.
10. Research and keep track of each prospective acquirer
You should be adding each potential acquirer to a list. You should use this list to keep track of each company and to record any further information and data you find out about them. It’s really important to study these companies and make sure they are aware of who you are and any recent business milestones you have had. Keep focused and ready to discuss strategic business partnerships with these potential buyers at all times.Make sure you pay yourself a salary
It is common for entrepreneurs to blend their personal assets with their business ones, since it is often a lot more convenient. However, when you are approaching and going through the M&A process, it is important to avoid this “commingling” and to start paying yourself an actual salary. It is important to be able to detail your salary and other perks and provide a history of compensation in order to prove the financial viability of your business.
10. Hire a professional M&A consultant
It is really worthwhile hiring a professional since they can remove a lot of the pressure often associated with attracting prospective buyers. They can be absolutely key in helping you understand and present your company’s financials in just the right way and, in doing so, can increase the amount of interest an acquirer might have in your business. An M&A advisor can also help you, once you’re fully prepared to sell, set up management meetings and in making crucial calls to potential buyers.
11. Employ a Chief Financial Officer (CFO)
Being able to effectively communicate all aspects of your company’s finances is an essential part of the M&A process. Employing a CFO will provide you with essential clout as far as your potential buyers are concerned since they will be better placed to articulate your company’s past, current and future financial information.
13. Remove the chafe from the wheat
It is essential to improve your overall profit, margins and your EBITDA in whatever ways you can. One way in which you can do this is to study your expenses and see which areas can be trimmed without having a detrimental effect on your performance. After all you still have to keep your clients happy, so don’t throw out the “chafe” without properly analysing its effect on your company’s performance.
14. Manage your resources
Resource reallocation is an excellent way to improve your financial outlook for potential buyers. By reallocating resources from an area of lower performance to an area of higher performance, you have a greater chance of increasing your EBITDA.
15. Don’t be afraid to look at other alternatives
As an entrepreneur, you might think going through the M&A process and selling your company is the only way to achieve enough capital to enable you to start your next venture. However, you do have a number of other alternatives, such as venture capital, partial liquidation and raising mezzanine or bridge financing. Finally, you could always employ a CEO to take over the running of the business if you are keen to take a step back and focus on other projects.