Your company is young, and you are working hard to grow it. So, it may seem too early to think about the day you will sell. But the truth is, every founder should set their startup as an attractive integration or acquisition goal from scratch. These four tips will not only help you when it comes time to sell – they will make your business stronger Now.
1. Use what is special and unique about your startup
Founders should think about what sets their company apart from others. Durable Key words, because your business must address long-term market challenges and be able to maintain its distinction against competitors over time in order to be successful and ultimately get a favorable M&A.
Does your company differ based on special skills, intellectual property, or core partnerships? Many founders tend to ignore their most important market differences, which means they don’t focus enough on what a potential acquirer will value most in their business.
Consider the following example: A founder started a software company to provide an ERP system for a small vertical small business. The founder owned and operated one of these small businesses before moving to a technology vendor. Although there was already a competitive solution, the founder launched the company. But the business was successful because the founder’s significant industry experience distinguished it by how much industrial knowledge and best practice workflow solutions were created.
Understand your company’s “secret sauce,” which is the only ingredient that sets it apart from its competitors.
2. Build relationships with key industry players (they may one day buy your company)
Strategic relationships with the big players in an industry can often take time to be discussed. This is because many have a Byzantine partnership approval process that involves lengthy review by law and consent.
Nevertheless, it is advisable to form partnerships with the top players in your industry whenever you can. Such partnerships now not only have the potential to increase a company’s revenue, but also expand the pool of potential future acquirers.
3. Have your finances audited
You are wondering why a small company should have a financial audit. First of all, it is better to do the right thing from the beginning than to correct the mistake.
Your financial audit of accountants also helps to avoid problems that could derail the acquisition down the road. The most common problem in the unaudited financial sector is that liabilities such as revenue recognition errors or sales tax are not properly credited.
For example, a SaaS company has had to change its entire financial history because it has never been audited and has been incorrectly acknowledging revenue for years. Unfortunately, this issue was brought to the attention of the company in the middle of an M&A process by a potential acquirer, who eventually decided to acquire a different company.
Instead of discussing whether you have properly identified revenue, talk to a large company interested in buying your business strategically. The money spent on getting your number in the first place will be one of the best investments you can make.
Also, be aware that one item that most accounting firms do not address is the correct representation of finances. Talk to a banker about the industry standard format suitable for your sector so that investors or acquirers can easily compare your audited finances with other companies in the industry.
4. Seek advice from trusted advisers
It is important to have a long-term relationship with trusted advisors who can provide advice and help you navigate key decisions as your company grows. These types of advisors can be most valuable when they are part of your company’s journey from the beginning.
Investment bankers often come into a relationship too late, leaving very little time to make the desired changes before an M&A transaction. It is a common misconception that a company must be prepared to sell before engaging in dialogue with investment bankers for advice. There is no need to sign an engagement letter before negotiating with an investment banking partner Most investment bankers are receptive to establishing an informal relationship that can potentially pay off for both parties down the road.
Sales of your company may seem like a distant prospect right now, time flies when it is built for a successful business growth. Following these tips now can lead your company to an easier, more convenient exit when it comes time to finally sell.
Stephen Day’s co-founder and managing director ChristmasAn investment-banking firm focuses on raising capital for M&A and SaaS, e-commerce, IT services and technology-enabled companies.
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