How to protect your business when selling it?
Entrepreneurs and business owners can often do more harm and can sabotage their own success.
This they do by being overly protective in the hiring, fundraising, and M&A process.
So it is wise to think ahead about how to protect your company, and its stakeholders.
There is a lot at stake when it comes time to prepare and market your business for sale, and through until the closing.
It pays to know the real threats to the company, the future of the mission, the value to your stockholders, and yourself.
Plus, of course, how to effectively defend against those issues, while maximizing your exit.
Remember that mastering the storytelling side and how you are positioning your business is critical when it comes to engaging and speeding up the process. This is done via your acquisition memorandum. This is super important to reach a successful acquisition. 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.
The Threats When Selling Your Business
What are the legitimate risks and threats when selling your business?
Which should be on your radar as you plan to market and negotiate a M&A transaction?
Data security should be a top priority for every business on a daily basis today.
Unfortunately, it rarely is. It often isn’t even on the radar. Despite all of the new regulations and legal risks.
Many seem to give no thought to the data they collect and how risky it is for them to do it. Never mind storing it securely.
On a whole business level this presents many risks.
During the due diligence process, you will be giving acquirers and often other third parties access to the most private information about your company.
If you aren’t careful, unscrupulous actors may use this information to compete against you.
They’ll know what’s working behind the scenes and not, where your money is being made, and who all of your connections are.
See How I Can Help You With Your Fundraising Efforts
See How I Can Help You With Your Fundraising Efforts
Stolen Customers & Suppliers
Carrying on from the above, it is possible some bad actors are just engaging in this process to extract information on your customers and supply chain.
With all of your inside information, they can easily replicate your business and steal your customers.
They can look to block you out of deals with the best, or even critical players in the supply chain.
You may not only end up not having a deal to sell your business. But may not have much of a business left at the end of it if you are not careful in the process.
For this reason, you should know how to protect your business when selling it.
Stolen Business Models
Your startup could well have grown so fast and gained so much value and attention based upon your proprietary business model.
Some buyers may want to acquire you for your growth or existing cash flow or team.
Others are just debating whether it is the cheaper method than tying you up in lawsuits or copying what you are doing themselves.
Be cautious about handing them the secret sauce and keys to everything.
Revealing What’s Not Protected
During the due diligence process buyers will be making special efforts to determine what exclusive assets your business owns that are of value.
Especially what assets they cannot easily create or copy themselves.
This includes your trademarks, patents, copyrights, and other intellectual property.
This process will also unveil which of these potential assets you haven’t properly or thoroughly protected.
Not only will this devalue your business in a M&A deal, but may leave you open for more copycats.
Or worse, have them registering that IP on their own behalf without you.
Understanding Your Financial Weaknesses
Expect buyers and their representatives to dig deep and broad into your finances.
They’ll want to see every digit of your sales, revenues, profits, tax obligations, debts, and outstanding stocks.
They’ll dig into where all of your money is coming from, how and when. As well what is owed, and how much capital you have on hand.
If you are running out of money, they can certainly use this to their own advantage in the negotiation process.
They can drag things out and wait until you must sell or fold your business. They can weaken you to force better terms in renegotiations.
Poaching Team Members
During this process the buyer will also go through each and every one of your employment contracts.
They will know what talent you are using, how much you are paying them, how well they are performing, and even how happy they are in their jobs.
That’s a lot of ammunition and leverage that could be used to poach and lure away your best talent and most prized team members.
Since many acquisitions are acquihires, based on the talent, that could leave you robbed of a lot of your company’s value.
Keep in mind that in fundraising or business acquisitions, storytelling is everything. In this regard for a winning pitch deck to help you here, take a look at the template created by Silicon Valley legend, Peter Thiel (see it here) that I recently covered. Thiel was the first angel investor in Facebook with a $500K check that turned into more than $1 billion in cash.
Remember to unlock the pitch deck template that is being used by founders around the world to raise millions below.
How To Secure A Business When Selling
With so many varied and costly threats to your business in the M&A process, what can be done to minimize and eliminate these risks?
At the same time, while still pushing forward to a great exit, how to protect your business when selling it?
Great Legal Counsel
Attorneys can be notorious for dragging things out, adding to the expenses and sometimes being overly conservative.
But, they can also be necessities in these circumstances.
They will help you structure preliminary paperwork to protect you throughout the process.
As well as being there to help you prepare and get your contracts and documents in order to avoid risks in the negotiation and due diligence process.
Then they will be there to defend and act on your behalf should your buyer or their representatives misbehave.
A strong M&A advisor will prive vital and invaluable for both unlocking the full value of your business in this process and minimizing your risks.
As well as ensuring a smoother and more efficient process.
They can help you with everything from valuing and organizing your business in advance and developing the right exit strategy.
They’ll also assist by connecting you with the right, credible buyers, and overseeing the transaction.
Managing Your Virtual Data Room
Much of the data you will be conveying to your prospective buyers will be via your virtual data room.
Firstly, you should be clear with your team about what information should and shouldn’t be divulged here.
Secondly, make sure you have a virtual data room with all the controls you need.
For example; being able to grant and revoke permissions to access the data.
As well as to track who is viewing it and when. Plus, being able to see what they do with your data, like downloading or sharing it.
Throttle Information Carefully
Provided you get the paperwork right, and have the right guidance in negotiating and writing it up, you can decide what gets shared (and not), and when.
You can carefully throttle the release of information throughout the process. Not holding things up, but intentionally releasing it only as needed.
This way you have more time to evaluate and monitor those you engage with.
And you’ll minimize risks, only releasing critical information as you get closer to a closing.
You’ll understand these critical facets when figuring out how to protect your business when selling it.
Identify Information You Won’t Share
While there are a lot of things that are ‘standard’ in M&A, you might be surprised at what you don’t have to share.
There may be a lot you can negotiate to not reveal.
This is going to take help and an advisor who really wants to help you, and being willing to voice what you want, without blowing a great deal.
Be sure these items are clearly listed out in your agreements.
Limit Contact With Customers & Staff
Thorough buyers are going to want to speak with all of your customers and everyone on your staff. It makes sense.
They want to be sure you are telling the truth. And, they want to see if they are happy. They also want to know that they want to stay.
Of course, this can also create a variety of issues. You want the buyer to be confident and happy.
You want a smooth transition and to be transparent with your people.
Though you also need to be cautious about scaring customers and team members, which almost invariably happens.
Be clear about boundaries for this activity, and manage it carefully.
Be Sure Everyone Is On The Same Page
It is especially important that you, your cofounders, your board, and staff, as well as any other voting shareholders, are on the same page.
This is obviously key for keeping negotiations moving forward smoothly, and keeping the buyer engaged.
It is also vital that they don’t detract value by saying the wrong things, or lose focus from pushing the most important metrics during this period.
Being united on this front from even before serious conversations about a sale can be powerful, but it can be tricky.
It’s another of the most critical facets of how to protect your business when selling it.
Tighten Up Contracts
As mentioned previously, your legal team, and HR department can and should be working to tighten up all of your contracts in advance of serious exit talks.
This may specifically include tightening up non-compete and non-disclosure clauses when possible.
It is probably smart to do the same with your suppliers and other parties in your supply chain.
If you can secure exclusive deals, that will secure your business for the next owner.
It can make your business even more valuable. You may even wish to buy some of these other companies before you are acquired yourself.
It may also be valuable to make similar updates to contracts with your customers.
Can you extend contracts, increase pricing, secure long-term deals, or bring in more money upfront to enhance your financial position.
Even as you’re working out how to secure the business, you should also know how to value your company Estimating an accurate price will help you execute the sale more efficiently. If you would like more information about how an expert M&A advisor can assist, check out this video. you’re sure to find it helpful.
Choose Your Buyers Carefully
Clearly, many of these threats and issues come down to the buyer and brokers you are dealing with.
Making choosing a great buyer is one of the best things that you can do to protect your business when selling it.
Vet them and build relationships first. This may take months or years, but it can make all the difference between a fantastic exit and the next chapter.
Or devastating your business and wasting all of the work you’ve put into it.
This is another area in which a great M&A advisor can make all the difference.
Leverage them to identify and get introduced to the right buyers.
Those who are serious about buying you, and doing it in the right way. It can immediately solve many of these risks we’ve covered.
If your business is successful (and even when it isn’t) you will ultimately end up at some type of exit. Often that means selling your business.
This is why, you should learn how to protect your business when selling it.
While there can be great rewards of selling your company, it also comes with its share of risks. Many of which come down to the buyers you engage with.
It may seem challenging to strike the right balance between optimizing for a great deal.
And protecting your business and its shareholders in the process.
Though there are also many steps you can take to ensure you are building a solid, valuable and attractive business, without overexposing your venture to risk too.
You may find interesting as well our free library of business templates. There you will find every single template you will need when building and scaling your business completely for free. See it here.