My brother and I started our software company shortly after I graduated from college in 2007. Upon launching it, we both had a plan to eventually sell the company one day.
It was my personal goal to have our company be acquired before I turned 30 years old. It just so happened that we finalized the acquisition contract exactly on my 29th birthday.
As anyone who has sold their company can attest to, there are always things that can be learned from a sale or acquisition. They say “hindsight is 20/20” and that rings true in most situations.
Here are 6 things I learned.
1. When in negotiations, he who speaks first loses.
Know what you would sell for, but keep it a secret. It’s easy to say “I’ll sell my company for no less than X times EBITDA, because that is the standard industry rate.” But the reality is that your company will only sell for what someone will offer you for it.
2. Keep your books in order.
Companies want to see numbers. P&L’s, Balance Sheets, Subscribers, Buyers, etc. are just a few of the numbers that they’ll need to see. Facebook's $1Billion acquisition of Instagram is a rare acquisition, so don’t expect to sell your company that makes zero revenue for a billion dollars.
Yes, the skills and talents you posses are important and most companies will take assets and employee assets very seriously, but numbers speak the loudest.
3. Use a broker.
Trying to run and grow your business while simultaneously working on selling it oftentimes just doesn’t cut it. If you have to spend the majority of your time negotiating and reviewing contracts, it will take time and money away from your business that you are going to sell in the first place. Keep in mind also that if you’re focused on selling your business and not focused on your revenue, then it’s possible you’ll see a dip in revenues which will be taken into account during the negotiation process, and this might cause your valuation to decrease.
4. Systematize and document everything.
In the same way that houses that are clean and have fantastic landscaping sell more quickly and for a higher amount, your business works the same way. Organization, documentation, and systemization are all important to have in place.
5. Be willing to lose control (and work hard for someone else).
Look, we’re entrepreneurs. We like being self-directed. When you sell your company, you will need to be willing to work your tail off for the new company. Prove yourself with them, and not only did they acquire your company, but you’ve got a solid reference to take with you into your next job or company you start.
6. Do your own due diligence on the company that is acquiring your company.
Who are they? What is their overall vision and what is their vision for your products/services? How do you fit in (if you want to fit in)? Do you get along with the team? Do your own research on the company as well as the team you’ll be joining. Company culture is defined day to day by an entrepreneur and it’s important that if you stay on board that you’re comfortable and fit well with the team.
I’m now sitting on the other side of the table and working on buying companies, which is a really new and exciting experience. I welcome your comments or any additional feedback that you learned when you sold your company.
Marc D. Horne