Ready to sell your startup business? Make sure you’ve covered these bases if you are wondering what to do when selling your business in an all stock acquisition.
Selling a startup is a big moment. Perhaps the only thing bigger than your payday is going to be everything you’ve got to do to get through the finish line and how complex taking stock is going to be.
Hopefully, you’re reading this month if not years before you actually close on your exit. The better you structure and run your business from the beginning, and the more strategic you are in building it to be acquired, the easier it will be and more you’ll net.
Regardless of how soon that is, make sure you’ve crossed these important to-dos off your list.
1. Clean Up the Paperwork
Corporate documents, client and vendor contracts, employee agreements, intellectual property, previous investor documentation, sales pipelines, and accounting all need to be impeccably organized and cleaned up to maximize your value, make it appealing to begin the purchase process, and ensure the deal goes through.
You may be wearing a lot of hats in the beginning and working a lot of roles, but you’re selling yourself very short by being unorganized. In an all stock acquisition, generally, the longer you wait, the harder it will be to clean it up, if you even can.
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.
2. Evaluate Your Business from a Buyer’s Perspective
How much is your business worth to a strategic buyer? What is that based on? How are acquisition trends changing? Where are they likely to be when you are actually fielding offers and are closing the deal? Definitely important questions when thinking what to do when selling your business in an all stock acquisition
One of the easiest ways to begin honing in on this is to benchmark your company against other recent sales in your industry, with similar metrics.
In my Inner Circle training program, where we help from A to Z in fundraising, you’ll find charts of what to expect at each stage of business and in my calls I cover valuations, cleaning up a corporate structure and how to survive due diligence.
3. Get a Handle on Taxes
When thinking what to do when selling your business in an all stock acquisition remember that taxes are going to determine how much you actually get to keep in a sale. Selling your business for stock can have great advantages when it comes to legally minimize tax liability. You typically won’t take the massive hit you would in an all-cash deal.
However, there are multiple ways to structure these deals. Mergers and corporate restructuring may sometimes offer tax-free transitions. Though typically you’ll be going line by line over each category to allocate assets and determine the gains or losses on those different parts of your startup.
Selling your startup in an all stock acquisition can spread out your liability and potentially minimize your tax bracket and how your gains are taxed. Though this will depend on when you liquidate stocks and what they are worth then.
4. Get Expert Advice
When thinking what to do when selling your business in an all stock acquisition, it doesn’t matter how much of a genius you are at product development, there are so many working parts and new elements to learn in exiting a startup that it’s just smart to get professional advice.
This certainly includes a tax expert who can help you create a tax strategy and plan based on your unique individual circumstances.
How many shares you’ll get, at what price and how they are funding those shares, and the impact on their value can get incredibly complex. Hopefully, you already have the best startup lawyer that money can buy in your corner already.
Be sure to include an investment banker or third party advisor who can help with strategy for promoting your business to be acquired, how much you should be asking and for vital advice on negotiating the right terms and clauses.
Even if you don’t use them for the entire process you may find a few hours of their time consulting makes all the difference and returns many times your investment.
5. Budget Your Time
Once you get heavy into negotiations and the due diligence process, an exit is going to soak up much of your time. Remember that if you are wondering what to do when selling your business in an all stock acquisition.
It’s going to bring daily meetings, often at crazy hours. There will probably be cross country flights, lunches, and countless calls about the due diligence process and documents. If you thought you were busy already, this will redefine that for you.
Ge ahead by budgeting your time between running your business, dealing with the sale and having a real-life, in advance.
6. Get a Post-Sale Game Plan
It may feel like you already have a lot on your plate, but it will pass faster than you might think. It will also pass more easily if you know what you are going to do next.
When will you cash out your stocks, and how much? What will you do with the money? What will you do with your time? It’s worth thinking about this when considering what to do when selling your business in an all stock acquisition. It will put things in perspective and help guide your decisions.
7. What about Earn Outs?
How long will it be after the sale before you are actually permitted to sell your stocks? What limitations may be put on that? Will your venture still have to achieve certain milestones and performance criteria to earn your full payout?
Will you be required to stay on an manage the company and your acquirer’s interests for the next few years? If so, what real decision making authority or control will you have? When you do leave, what restrictions, if any, will there be on what business you pursue next and who you hire?
All of this is negotiable. Know what you can stomach and can’t in advance.
8. Get Everyone on Board
It is smart to be having exit conversations with your cofounders and investors far before you ever get an offer or begin strategically pitching your startup for sale.
That should begin before you even really get into business with each other. This is an active and ongoing conversation, so you are working toward the same exit, and when an opportunity arises, everyone is already on board, at least in theory.
If wondering what to do when selling your business in an all stock acquisition keep the above in mind and you will be in pretty good shape.