Selling your startup might be the last thing on your mind right now. I’m sure you’re busy enough just running your business, so why add acquisition planning to your to-do list? While that sounds logical, it’s a false economy. Acquisitions need careful forethought and planning. Fail to plan now, even if you don’t plan to sell for a year or more, could nix a later deal.
Think about it: Your entrepreneurial career needn’t end with your first or even second startup, so you’ll probably want to sell eventually. Your first acquisition might further your career, but your second or third might change your life forever. How soon you achieve that life-changing acquisition, however, is up to you and how early you start exit planning.
You can’t sit around waiting for a buyer’s offer. Why? Because when an acquisition opportunity arises, you have a narrow window in which to close the deal, and if you leave planning until the last minute, you only shorten that window further. But if you prepare well in advance, not only do you impress potential buyers, but you also save precious time when you enter negotiations.
How Time Threatens Your Acquisition
Acquisition timelines can be as delicate and fleeting as cosmic alignment. When stars or planets align, astronomers have but a short timeframe in which to observe the event, and you have an equally narrow window in which to close your acquisition. Below is just a sample of the many intrinsic and extrinsic factors that could derail your deal, and why early exit planning is essential.
The Buyer Might Change Their Mind
Yes, buyers can and do change their minds. It might be due to personal circumstances, a change in investment strategy, a better acquisition opportunity, or a revelation about your business that puts them off. The longer it takes you to prepare, the more time you give the buyer to back out of the deal. Your ill-preparedness will likely be poorly received too.
Emerging Technology Could Make Your Startup Obsolete
While pessimists argue innovation is decelerating, don’t be fooled into complacency: Unless your startup is extraordinarily complex or unique, the potential for emerging technology to render your startup obsolete is a legitimate threat to your acquisition. You can’t predict if or when this might happen, so err on the side of caution and prepare for a fast acquisition.
The Market Might Rebel Against You
Competition, regulation, economic growth, and shifting tastes and attitudes are among the many factors influencing the size of your market. Spend too much time negotiating terms or preparing due diligence documents, and the market might shift, calling your financials (and projections) into question and forcing the buyer to rethink your acquisition.
Life Can Get in the Way
I don’t want to sound cynical or pessimistic, but you might need liquidity quickly in response to a life event (even a joyous one). If you’re not ready to get Acquired, not only do you threaten the acquisition, but also your ability to secure that liquidity in good time. The consequences of that failure would depend on your underlying need, but wouldn’t it be safer to be ready, just in case?
How to Stay Acquisition-Ready from Day One
At this point, you’d be forgiven for thinking, “Great, another thing to do,” but acquisition planning needn’t be difficult. You’re starting early, so you have plenty of time. Better yet, hire professionals to help you. You might not see the value immediately, but it’ll be abundantly clear come acquisition time whether you used their expertise or not.
Involve Your Accountant
Your accountant, for example, will help keep your financials current and ensure you’re paying the correct taxes at the state, federal, and any other levels you may not even be aware of. You probably have an accountant already, and you should discuss with them the prospect of a future acquisition and how they can help manage your financial affairs and reduce or eliminate your tax liability when it’s time to sell.
Consult an Attorney
An attorney will administer your customer, vendor, and employee contracts, and help to manage your other legal affairs like intellectual property, licenses, and any disputes that arise in the course of your business. They’ll also document your equity grants and manage your equity incentive plan and, generally, clean up your capitalization table and ensure it’s up to date. With your legal documents in order, you can present your startup to potential buyers knowing you’ll pass due diligence with ease.
Engage an M&A advisor (early!)
Finally, an M&A advisor will help you understand the acquisition market, process, and how ready you are for later acquisition. They’ll explain the marketability of your business, for example, your advantages and disadvantages, and advise on simple changes you can deploy now to help increase your valuation later.
These professionals are your acquisition v-formation: Your attorney and accountant identify and resolve due diligence issues early while your M&A advisor leads your business to a better valuation and a potentially life-changing acquisition. You don’t know what you don’t know, and failure to prepare early could cost you several thousands of dollars or even millions.
Ready to start exit planning? Consider hiring an approved advisor from our M&A Advisor Directory. Choose from over 50 advisors vetted by our in-house legal team, and start your acquisition planning now, when there’s time to implement changes that improve your valuation and ultimately get your startup Acquired for a life-changing sum.
The content on this site is not intended to provide legal, financial or M&A advice. It is for information purposes only, and any links provided are for your convenience. Please seek the services of an M&A professional before any M&A transaction. It is not Acquire’s intention to solicit or interfere with any established relationship you may have with any M&A professional.
