For many founders, the ultimate dream is to put their blood, sweat, and tears into turning their idea into a successful business and then sell it for enough money to fuel their next dream, be it retirement or their future. next business. It could be a year or 10 years from now, but in any case, an acquisition is a complex transaction and few founders are prepared for it. So if you even think selling is your exit strategy, what can you do now to make it run more smoothly and make sure you’re getting the biggest payout possible? Here are five tips.
Make sure your books and records are clean
First, hire a strong controller or CFO as soon as you can. It might not be day one, but the sooner you do it the smoother the process will be. On a related note, hire an outside accountant and make sure you have the finances of an outside accountant. Again, this makes things a lot smoother. Second, many founders make the mistake of mixing their money and the company’s money. It’s easy to do if you use your own money to help the business through tough times and lend yourself money when you need it. But don’t use the business as a piggy bank. Keeping your finances separate will make things a lot cleaner in the long run.
Consider getting hit by a bus
Take a top-down look at your business from a third-party perspective. If you were to be hit by a bus tomorrow, could your business continue with someone else to run it? It should be able to do it, and that’s how you should run your business from day one. This will make your business much more attractive to potential buyers if it is more of an “institution” (that is, it has policies and procedures) than a “mom and dad”. (Think about the basic chords and all the knowledge in your head). It will also make due diligence faster and more economical.
Preserve your capital
Many companies are enthusiastic about the idea of ââventure capital. Still, you need to remember that the equity you give in exchange for financing means less money for you in an acquisition. Let’s say a VC invests in your business in exchange for 10% equity: when you sell for $ 20 million, you are only giving your investor $ 2 million of that salary. On the other hand, if you were to finance your growth through a line of credit and pay it off when you sell it, you own most, if not all, of your business. (I say “most” because venture capital and debt can work together, so if you use a combination of the two you’ve probably given a smaller slice of your pie.) In this example salary of 20 million dollars, you could pay a few hundred thousand dollars on your line of credit for $ 2 million.
Involve a trusted team
It is always difficult to let your team know that you are considering selling; it’s emotional and you don’t want them to worry or leave. But involving a small group of trusted employees in the process is essential. You can’t sell a business and run a business at the same time! You might not have thought about it, but selling prices are moving targets during the due diligence phase. If you don’t delegate to your most trusted teammates to keep the business going, you may lose focus and stop growing, which will impact your final sale price.
You also need an advisor on your side. Hire someone from the outside to help you, so you don’t let your emotions cloud your judgment. Some advisors buy and sell businesses for a living.
Manage your valuation expectations
Everyone wants to be the next Justin, RXBar, or Vita Coco, but these reviews are for unicorns and they are very rare. Don’t go out into the market with the expectation of a massive appraisal as you’ll be disappointed, discourage potential buyers, and lose your leverage if you have to come back in round two with a lower number. You only have one chance to make a great first impression.
Selling a business you’ve started or in which you have a good deal of equity can be emotional, complex, and at times overwhelming. But there are steps you can take to prepare, streamline the process, and earn a bigger paycheck. Ultimately, it is an exciting time, the result of a lot of hard work and making a dream come true. Wherever you are in the process, congratulations!
Jennifer Palmer is CEO of Gerber Finance, leader in Asset Based Lender for high growth brands, specializing in natural products through its Naturally Gerber division.