The DealMakers podcast features entrepreneurs that have been successful with M&A transactions or capital raising efforts.

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Thinking about selling your business and wondering what to are the things to look for? Here are ten things to consider before an acquisition in order to come out on top when doing M&A.

Exiting a startup for millions or even billions may sound great. However, it is quite different than selling your old car, home, or product. There is a lot to the transaction. It can impact you on many levels. The payday may be life-changing.

Just make sure you know what to expect and have thought it through before entertaining offers or hiring an investment banker.

1) Can You Survive the Due Diligence?

If you thought to launch a startup, fundraising and maintaining growth was a challenge, you haven’t seen anything yet. This will be the most grueling challenge you’ve faced yet. Can you survive it emotionally, mentally, energy-wise and mathematically?

Many entrepreneurs go through it several times. A few do it almost every few years. Though you do need to be prepared. Expect every piece of communication and documentation to go through the grinder over the months and years ahead. Try auditing your own business from a buyer’s perspective.

Practice due diligence on your own company. Where are you weak? Where will the problems be? How can you legally and ethically close those gaps and polish it?

In any case, this is the moment where you will be backing up all the claims made on your acquisition memorandum template which captures the essence of your business. For a winning acquisition, memorandum template take a look at the one I recently covered (see it here) or unlock the acquisition memorandum template directly below.

2) The Taxes

Small business owners tend to write off everything they can to minimize tax liability. The less profit you show, the better when April tax filing season comes around. Of course, the opposite is true when it comes to selling your company.

To get the best price you are going to need to show the most possible profit. That means the IRS is going to be expecting an even bigger payday. Maybe even your state too. Make sure to budget for this.

3) Cash Flow Gaps

If you switch to focusing on a sale instead of raising another round of funding, what cash flow gaps might you experience?

You don’t want to have to negotiate out of a desperate situation either. You don’t want to deplete your cash and mount up the debt and have the other party trying to renegotiate at the last minute. What if the sale falls through? Will you have enough funds to get from there to a new round of capital in the bank.

4) What Will Happen to Your Employees?

What is going to happen to your team and any cofounders in an acquisition? If you are being acquired for the talent they may do even better.

If it is a large exit and they have options, it may be the best gift you can give them. If there is a poor culture fit and the business is going to be shredded, and run into the ground (most are), then will you feel bad about that? Where does this rank on your priorities and responsibilities compared to your investors and others?

5) What Will Happen to You?

It’s unlikely you are going to just set sale the day after the closing to go live on a desert island sipping mojitos under a lone palm tree for the rest of your life.

The good news is that you’ll probably be asked to stay on and help manage your former business. The bad news is that you’ll probably be asked to stay on. Some entrepreneurs really thrive when this happens.

A great buyer can give the mission wings and provide fantastic learning experiences and more able to accomplish big things. Unfortunately, most entrepreneurs just aren’t cut out for working for someone else after they’ve tasted startup life. It can be a grind.

Actually, enjoying that payday might rely on your ability to handle the 9-5 grind again for a few years. Can you do it? Even if you are set free with plenty of money in the bank, what will you do next? How will you cope with leaving your business baby behind? What will you do to occupy yourself?

6) What Will Happen to Your Customers?

Most founders consider their investors, partners, and team when thinking about selling, but what about the customers? They trusted you.

Those first customers made a bet on you. They rely on you. What will happen to all that in a sale? Will the rates go up and the service go down? You can often tell when a company has gone public or is trying to when these two things happen.

You can wash your hands and march on. Or do you hang on and make sure you find a better buyer? Is it just about making the most money this quarter or serving the end customer?

7) How Will You Manage the Stress & Distraction?

This is going to be an emotional roller coaster especially if you are dealing with companies that are not as sophisticated as Google in terms of acquisitions.

Everything about your business and your ability to run it will be called into question. Your offices may be mobbed with strangers. You may be flying almost daily to meetings or on the phone late at night, every night.

Then, even worse, the buyer can go completely dark and silent for weeks. It’s not only an overload for your nerves, but a massive distraction from keeping the business-focused, on point and growing forward. What’s your plan to manage it?

8) Legal Agreements

There are a lot of potential hiccups on the road to a closed M&A transaction. One of those often overlooked is legal agreements with customers, vendors, lenders and equity owners.

Are yours too different from what a potential acquirer is used to? Will it be too much headache for them to fix them? Have you made the switch to institutional practices, processes, and software which will make your company more attractive to potential acquirers?

9) Cash or Stock?

How will you get paid? Will you take all cash? All stock? A mix of both? Some of the very successful founders I’ve interviewed on the DealMakers Podcast say they wish they would have invested in a lot more Google stock when they were employees instead of going through all of the thrills of a startup.

Some have held stock too long after the acquisition was completed and things ended up turning south. Some have sold a little early. How will you do it and what would be your approach around timing?

10) You Can Probably Buy it Back

Selling your startup doesn’t have to be the end. The truth is that the majority of mergers and acquisitions don’t work out nearly as well as planned as Investopedia points out.

During acquisitions, there are a lot of logistics and integration to manage after the fact. Many businesses are stripped or left to rot after being bought. So, there is always the possibility that you can buy it back in the future.

Sometimes, even at a great discount to what you sold it for. It may have some serious wear and tear, and operations and brand bruises by then, but some founders have ultimately sold their startups two or three times.

If you are looking to get your company acquired and run a successful M&A process, a great acquisition memorandum template like the one below should provide the right guidance so that you build your own and make all the difference.

 

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