What are the most common business acquisition mistakes that you may encounter during the process of selling your business?
An acquisition with a lot of zeros attached to it is the ultimate end game for most of today’s entrepreneurs and their investors.
Even if that wasn’t the original game plan, no one wants to mess up after receiving an attractive offer. Here are the top blunders not to copy from others when it’s your turn to cash in.
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.
Here is the content that we will cover in this post. Let’s get started.
1. Accelerating Spending
Don’t count your chickens until they hatch. This is one of the most most common business acquisition mistakes. Selling a company can be a lot like selling a house or any other business deal. It’s not done until the money is in the bank.
While most founders I’ve interviewed on the DealMakers Podcast have been far more interested in the impact they have with their ventures than the money, that’s certainly not true for every entrepreneur and stakeholder.
Yet, it is extremely important not to accelerate personal spending or cash burn on the hope of a deal closing. You don’t want to put yourself in a position that may tempt rash choices, or send your business nose-diving into financial trouble if the deal falls through.
2. Getting Locked In
Perhaps the best goal and purpose of a startup exit is to maximize the potential of the company. It’s actually legally and ethically the only reason for a sale.
Second to that is the individual investors, and the team. Yet, as an individual, you also have a responsibility to the other people in your life and the world to be working at your own max potential and contribution.
One of the often unforeseen and lessor thought about the dangers of an acquisition is getting boxed in. That can happen by being locked into the company during a long resting and vesting period.
There are a few exceptions when it comes to common business acquisition mistakes in this area. A couple of the entrepreneurs I know with great exits have really enjoyed working at Google and Apple after being bought.
It was an opportunity to create something of value and learn a lot. Though most real entrepreneurs just aren’t cut out for being a corporate employee again.
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That’s why you went out on your own in the first place, right? Two years can feel like a really long time. Especially, when you have little authority or control.
Getting boxed in can also happen with stringent non compete and no solicitation agreements and clauses. You don’t want to have to sit on your hands for the next five years or have to leave your cofounder behind while your next startup idea is burning a hole in your head.
3. Revealing Too Much Information
I generally believe sharing is good. Especially when it comes to getting your initial idea out there and updating potential investors and acquirers.
If you refuse to do anything without pushing an NDA in front of everybody, including low-level staff, you aren’t going anywhere fast. Speed can be far more important than the idea.
Sadly, it is also true that there are companies out there who will try to steal your stuff which is top of mind when thinking about the common business acquisition mistakes.
They might come direct or through a banker or partner. They may just be conducting some recon to try and replicate what you are doing. It is a risk. You don’t want to give them 100% of your secret sauce. However, you can really blow some great offers if you are too paranoid.
Give away enough to attract offers. Give away enough to get an LOI that can really stick. Share enough to get through all of the next stages as you go. Be smart, but not too suspicious.
4. Not Having Everyone on Board
The last thing you want is for the deal to fall apart because of your own board and investors. It can already be a delicate balance of politics.
This is why it’s so important to be careful who you bring in as investors and board members along the journey and to ensure you really share clarity and vision. Or at least be confident they will roll with your decisions.
5. Underestimating Synergy
A successful acquisition is all about synergy and if such a thing is not there it can be catastrophic and for that reason, I would consider this one at the top of the common business acquisition mistakes.
That runs from ensuring you aren’t wasting time in conversations with the wrong people, to streamlining negotiating the terms and seeing a successful merger and integration play out.
This requires you being clear on what’s important and what you are about, as well as laying that out in early conversations and really getting to know who is on the other side of the table.
Mastering the storytelling side and how you are positioning your business is critical when it comes to setting up the expectations and understanding synergies. 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.
ACQUISITION MEMORANDUM TEMPLATE
6. Not Protecting Your Employees
While you may have other priorities too and don’t think this is one of the most common business acquisition mistakes, not ensuring your employees are well taken care of will be one of your biggest regrets later on.
You may secure some of your original team new executive positions in the move, try to protect their jobs from being axed, and defend the culture you’ve built together.
7. Not Structuring the Deal to Minimize Taxes
Your corporate structure, the way things are transferred and whether you take cash or stock all play a part in how big of a bite the IRS is going to take out of your share of the deal.
That may make the difference between losing 15% or over 50%. It’s not the top line that really matters if you are counting the money, it’s what you get to keep.
Don’t throw away millions after all that work just for the sake of a few tweaks. This is one of the most common business acquisition mistakes that is easier to avoid.
Don’t rush it. You don’t want to miss a great opportunity and the best play for your company. Yet, being a little strategic and employing strong negotiations can result in far greater offers from the same buyers, competing for offers and better terms.
Ultimately, you don’t want to seem desperate or get stuck with terrible terms.