Finally, you have someone who is ready to acquire your startup. You are now excited about this and preparing all you need for beginning the process. But then the tension comes in. How would you prepare for the startup acquisition? Getting a seller is just the beginning of the startup acquisition process. The hard work is still yet to come. And if you fail to prepare a proper startup acquisition strategy, then it can cost you the buyer. It can also hurt your startup acquisition valuation and your company would be valued at a much lower value (the amount you get from the acquirer when they buy your company).
There are a lot of things that you need to look into and take care of, especially the members of your team. You need to ensure that they are aligned with this new company. In this article, we will talk about the complete startup acquisition process. Keep reading to know more to help you prepare for the acquisition.
Are you considering selling your company for an exit? But you are just a startup company. Acquisitions are always very large and complex that even after preparation, no one is 100% prepared for it. That is one reason why it is important to prepare yourself for it. So, whether you are a founder or have some equity in the company, there are a lot of things you need to understand and prepare for a startup acquisition.
What is startup acquisition?
In simple words, acquisition is when a company has acquired another business and has taken control over all its operations and assets by purchasing it. A startup acquisition is when a startup company is being acquired by another business. The process of a startup acquisition usually includes the following:
- Initial Motivation and Consideration
- Preparing for Due Diligence
- Hiring a Legal Counsel
- Assemble a Finance Team
- Prepare the Team for Acquisition
- Seal the Deal
- Purchase Terms and Conditions
- Post Purchase Advertisement
Startups say the most realistic goal is acquisition
If you are wondering why would you even want to sell your startup when you just started it, then well – a lot of startups would rather sell off at a greater value than work towards maybe growing or even falling into a failure. In fact, several unicorns are preparing to have their IPOs soon and many startups are also hoping to be purchased by them. Startups feel that the most realistic long-term goal is to be acquired. It is the most common path to an exit. A lot of the startups usually do not know what their ultimate goal is, or even if they would grow. This underscores the difficulty of planning an exit amid increased market volatility.
Preparing for Startup Acquisition
With all that clear, we now can look into how to prepare for a startup acquisition. Preparing for a potential acquisition should actually take place before the real acquisition even becomes possible. It is always a good idea to have all organized before time so that you can easily share all the necessary requested documentation. So, what does this actually mean?
Well, here is a list of things that you need to keep in mind and follow so that you are ahead of the game and prepared with everything about the startup acquisition process:
#1 Be clear with the goals and motivation of acquisition
Once you are clear that the acquisition is taking place, the first thing that you need to do is set clear goals for the sale. And remember that the acquisition is not just about your personal gain but also about a myriad of other factors that would have an intense impact on the success of your business and team. So, you will need to begin to prepare for the startup acquisition by asking the following questions:
- Why are you selling your business?
- Is the acquirer the right fit for you?
- Do you have an exit strategy in place for your co-founders?
- How do you picture yourself going forward?
#2 Prepare your team
We understand that you want the best for yourself, but it becomes easy to neglect your employees and partners once you get a great deal. And it is very important for you to ensure that the buyer is the right fit for your team. Misaligned cultures can create painful transitions and you need to understand all the buyer’s beliefs, values and how their mission statement supports these. Are these ideas something that your team can stand with?
#3 Get your valuation done by an expert valuation firm
Valuations are very important for many reasons, especially when you are about to sell your company. There are many methods used to value a company. And there are different kinds of valuations as well; hence, you will need professional help for this. It would help you in deciding which kind of valuation you need for the acquisition. In fact, Eqvista is an application and team that can help you. If you want to check out your company’s value on your own, you can check out the business valuation calculator here! To be on the safe side, you need to get help from professionals. Eqvista can help you with this as well.
#4 Make your financial and accounting records in order
The company that is acquiring your startup would dig in deep into your financial records. And when we say deep, we mean way deep. So, you need to prepare the pro forma statements of your company at both the detailed and summary level. Along with this, you also need to keep all the supporting schedules for all the liability accounts and the company’s assets. In addition to this, you will also need supporting documentation for your revenue and expense accounts.
So, it is very important to give the acquiring company all the accurate financial projections. Based on the company acquiring your startup, you might have to give them the following:
- Short-term projections: These usually predict the details of the next year, with weekly to monthly details as well. These predictions lay the groundwork for the long-term predictions.
- Multi-year plans: These are 3 to 5 year forecasts that offer the acquiring company insight into your company’s potential.
- Cash forecast: This is the weekly predictions of your company’s obligations and earnings (cash flow in and out).
#5 Due diligence
As soon as you have prepared yourself strategically and mentally for the acquisition, it is time to get started with the due diligence. A lot of first-time founders usually underestimate the financial and legal aspects of the acquisition. And it is very important to get things done properly. So, having the right blend of tax advisors, lawyers, and financial experts is critical for a positive outcome. That is where you will need to get the due diligence done well.
#6 Hire professionals if needed
With this said, you will need a list of people (professionals) hired for the due diligence. And even though you might have a good staff for these things, it is important to get an expert from outside to avoid any mistake that can kill the sale. So, hiring professionals with specialized knowledge of acquisitions and the necessary preparations can be a big help.
Here are some of the professionals you need to consider for the startup acquisition process:
- CPA firm: They will help you in preparing the financial audit.
- Valuation firm: They would help you get the right value of your business so that you are able to negotiate and get the right price for your company. Eqvista can help you here!
- Financial/accounting services: These would help with the pro forma statements, and any other reports needed.
- Law firm: They will help with all the legal documents and buyer requests.
And even though hiring from the outside can cost you, their skills would help you avoid any mistake and would help you move ahead with the process easily.
Need any Assistance in Forming Your Business?
With all this clear, you can now move on and prepare for your startup acquisition. Just ensure that you hire the right professionals to help you. Eqvista can help you easily with your business valuation at a reasonable rate. If you have not yet started your company, and are thinking of starting it, IncParadise can help you in registering and incorporating your business.