Business owner meeting with financial expert.
2023 may have been a slow year for mergers and acquisitions (M&A), but the economic downturn comes on the heels of the biggest year on record. According to Statista, in 2022 he had 50,000 transactions. What’s even better? The craze for 2024 is just beginning.
If you’re dreaming of handing over the reins and making it big through an acquisition, now’s the time to start planning. You need to be prepared to exit your business on your terms.
From early planning to sound financial records, market research to team dynamics, explore what you need to do to build a strong story, demonstrate your company’s values, and achieve success years before you go to market. Let’s look at.
1. Decide if you’re ready to sell privately
An important first step in selling is to assess your own readiness. Are you prepared to let go of a business entity that you probably built from the ground up?
This goes beyond emotional attachment. Jodie Cook, founder of Coachvox AI, points out that lack of readiness can be caused by a lack of motivation. “Perhaps you’re bored and ready for a new challenge,” she says, as one sign it might be time to sell your business. “You want to solve bigger problems and let go of the problems you’ve seen before.”
If you’re considering selling, start with yourself. Are you in a good place to rest on your laurels and move on to something else?
2. Prepare your team well in advance
The same concept of assessing individual readiness applies to teams. Selling a company can be a dramatic event for everyone involved.
The obvious threat here is dismissal. Harvard Business Review reports that the average M&A within the same industry creates 30% redundancy in the workforce.
Even if your employees have a good chance of surviving the transition, are you prepared for the plethora of changing processes and expectations that a new employer will bring? Invest in preparation. It’s not just important for business survival; It’s part of being a trustworthy leader and a good person.
3. Prioritize clean books that support your company’s reputation
Bookkeeping is an area that is often overlooked during acquisition preparation. Because we’re not talking about profit margins or investors’ money, its importance is often overlooked.
There should be no difference from the truth. One look at a sloppy or uncertain book set can be enough to deter a potential buyer. Financial transparency is paramount, but further complicating the issue is that many small businesses do not have a dedicated CFO. In such cases, platforms like Hub Analytics can help interpret and audit your company’s books to provide insights and uncover potential errors.
Having at least five years of clean bookkeeping is one of the easiest ways to justify your appraised value or asking price. Without this multi-year financial record, a buyer or private equity firm could criticize the financials and reduce the price.
Proper data collection and clear analysis can generate insights that not only help guide your brand in the here and now, especially in critical areas like bookkeeping. It also provides a cleaner, smoother, and more profitable exit in the future. Be sure to implement systems early to maintain and track best-in-class finances.
4. Build and understand your ideal buyer profile
Next, consider the buyer’s situation. What kind of M&A partners do you want to approach?
Dena Jalbert, CEO of Align Business Advisory Services, which specializes in M&A advisory for middle market companies, emphasizes the importance of understanding the type of buyer. “Strategic buyers are particularly interested in companies with significant growth potential or a unique market position that complements their existing offerings,” she explains.
Identifying the right buyer can ensure alignment of interests and result in a better deal for the seller. It’s worth understanding early in the sales process.
5. Set the stage early and prepare to exit
Once you’ve assessed your company’s value in the eyes of yourself, your staff, your customers, the market, and potential buyers, it’s time to start preparing to accelerate a healthy, profitable acquisition. Michael Portegello points out that many IPOs take him 12 to 18 months.
Mr. Portegello is a former executive at a Big Four professional services firm and has assisted countless companies with successful exits. In his recent LinkedIn post, he wrote: I’ve also seen transactions where the window was suddenly closed. My advice is to start earlier than the timeline suggests, or if you have already started preparing, increase the urgency of your preparation during this period. ”
If you don’t have an IPO anytime soon, don’t postpone your preparations. Assess financial readiness, maintain strict compliance, and ensure operational and organizational readiness is addressed for the IPO window.
6. Maintain long-term momentum
Finally, don’t lose momentum in your company just because you’re thinking about parting ways. Conversely, a thriving business with no future prospects is unattractive to buyers.
Keep doing things with the same vigor and creativity that got you this far. Maintaining stability is clearly your top priority leading up to a sale, but don’t let it get in the way of your future growth plans. Continuing to innovate and expand your market reach not only makes your business more attractive to potential buyers, but also ensures long-term viability, whether or not a sale takes place. You can also.
Plan early for success
There are many points that managers should keep in mind when preparing for M&A. Assess everyone affected by the event. Assess the suitability of your situation and potential buyers. Keep your books clean. Maintain momentum. If you do all of this, you’ll be setting yourself up for a successful, lucrative exit and ready to turn your next big idea into a successful business.
