After years of tears, blood, sweat, late nights, missed family holidays, cash flow panics, sleepless nights etc, as well as a few celebrations along the way…you finally feel you’re in a position to sell your company. Finally some real cash. You’re a “multi-millionaire”. Finally, some FREEDOM.
Or maybe not.
Yes you might feel ready to exit to a trade buyer (or go public), and maybe you’ve already been approached, but this is one of the most important and most difficult projects of your entire life. Don’t blow it.
“Don’t take your pedal off the gas once you’ve decided to sell. In fact, you should press harder.”
If you want to reap the rewards of all those years on the treadmill, then here are nine things NOT to do while you are finally doing the thing you have planning to do for all those years (ie sell your company):
- Don’t state your asking price before you’ve developed a relationship with your counterparty (and potential future partner). It’s like asking to get married on your first date. Yes you’re excited, but, don’t do it! Your company is your precious jewel….make them really want that jewel before you state your price for it. They have to understand the jewel – see it, touch it, feel it, observe it from 100 different lines of sight, over time, in varying degrees of light – before they can really get to know it and decide whether they want to own it or not. If they decide they love the jewel, and need to have it for themselves, THEN and only then you tell them how much you want for it.
- Don’t require an NDA to be signed before sharing a small amount of information that might be slightly sensitive competitive information. Yes, you’re lifting up your skirt, and yes that’s a little scary, but you need to establish some trust. Trust is everything. You’re a big boy (or girl). Let them know it. Once you’ve shown them yours, ask them to show you theirs. If they say no, then maybe you can’t trust them.
- Don’t think you can sell your company without having prepared proper financial accounts, ie audited accounts, comprehensive monthly management accounts and credible financial projections. Your numbers MATTER. Do them early. Do them often. Make them a priority. Your numbers reflect who you are, what you achieved, and what you are likely to accomplish in the future. Ignore them at your peril.
- Don’t do a data room at the last minute. Start early. Take your time to load all the relevant information. Get it right. Keep updating it each month and for each new contract. Assign someone in your company with this task. If you wait too late to prepare the data room then not only do you risk appearing disorganized and shuttering momentum on the deal, but you may have caused yourself to be subject to more onerous representations, warranties and escrow terms. Ouch.
- Don’t go it alone. Some CEOs think they can do the whole deal all by themselves. Well, maybe they can, but it will be a stinky deal and the company’s employees will wonder where their leader is. If you want to save millions – or ever better, create millions – then assign your best people to the deal team and use them nimbly. At the same time, hire professionals advisers who do this for a living. Make sure they all work well together. You’ve probably learned by now that you get what you pay for. If this ever mattered to you, then it most certainly matters now.
- Don’t think you can find an acquirer and have cash in the bank in just a few months. It takes several months to prepare and to find a buyer, then several months of negotiation, then several months of due diligence, and then several weeks of documentation. It can be 6 to 18 months from the time you make the decision to sell and appoint advisers to the time you can expect cash in the bank. And even then you might have to wait another year or two for cash if you negotiate an earn-out rather than accept 100% cash up-front.
- Don’t take your pedal off the gas once you’ve decided to sell. In fact, you should press harder. The more revenue growth and higher profit margins you can generate during the sale process (and earn-out period), the higher cash proceeds you can achieve upon completing the sale. Think of it this way – for every additional $ or £ or € that you can generate in profit or free cash flow, you will soon get a multiple of that back (from 6x to 20x or more). So, make an extra $500,000 in H2 and you’ve just added $5m in your pocket….if you play it right.
- Don’t expect that market conditions will always be the same as they are now. They won’t be. Remember 2008/9? When the rain clouds come you can expect them to stay, and then you might have to stay in the tent a long time. So if you feel you want to sell, start now. It could be now or never.
- Don’t think you don’t need to worry about protecting your intellectual property. You do. Whether it is patentable or not, or whether you can copyright it or trademark it or not, get protection. This is especially relevant for software. How many developers worked on that software application? Was it outsourced? To whom? When? Do you have all the contracts? Clean up your messes. Ensure that your IP is in fact your IP before someone else tells you that it is not.
You’ve put in the work over all those years. You’ve earned the right to reap the rewards. So don’t give up now, just as you’re making the “final sale”. It matters now as much as ever.
As Warren Buffet said, “You only have to do a very few things right in your life so long as you don’t do too many things wrong.”