The first tip is to make sure that your financials are in order. That means:
Auditing your financials to make sure they are accurate and up-to-date.
If you’re required to, making sure that your accounting has been done in accordance with Generally Accepted Accounting Principles (GAAP). Even if you aren’t required to adhere to GAAP, you may want to consider using it if you think you may sell to a publicly traded company.
Review all existing contracts, including clients, suppliers and employees, to ensure that everything is properly executed and in place.
These steps will minimize the risk of surprises during your negotiations.
Know What Your Business is Worth: The next step is to calculate your startup valuation. You should have your valuation completed by a professional, especially if you have intangible assets that you expect to be part of the negotiation.
Knowing the fair market value of your business will help you manage your expectations and develop a negotiation strategy for the acquisition.
Know Your Walk Away Number: One of the best pieces of advice we can give you is to know your boundaries when it comes to the purchase price of your company. Your walk away number is the bare minimum you’re willing to accept for your company.
You need to be realistic, but you also need to be firm. Accepting a price that’s less than your walk away number won’t serve you well in the long term.
Talk to Multiple Buyers: You’ll almost always be able to negotiate a better price if there is more than one buyer interested in your company. You might not end up with a lucrative bidding war, but it helps for each buyer to know that there’s some competition in the arena.
You can attract multiple buyers through networking, or you can hire an M&A advisor who might be able to bring some unexpected players to the table.
Do Your Due Diligence: Any buyer is going to perform due diligence on you and your company before making an offer. You should do the same. Research will ensure you know who you’re dealing with and may turn up useful information to help you during negotiations.
Think of research as your ace in the hole. Anything you learn should be documented and brought with you into negotiations, where you can use it as needed to get the best deal possible.
Be Prepared to Make Strategic Concessions: Go into your negotiation with a list of strategic concessions you’re prepared to make. By strategic, we mean that you’re willing to give them up to facilitate the deal, and you’re prepared to sell their importance and value along the way.
Just as important as the concessions themselves, is being prepared to request concessions from the buyer. Remember, every concession is a favor that requires reciprocation.
Consider Making the First Offer: Most negotiation experts will tell you never to make the first offer because you may inadvertently show the other party your hand — and lose out in the process.
However, we think there are some circumstances when it makes sense. There’s a cognitive bias known as anchoring. It happens when a consumer hears a price for a product or service, thus “anchoring” it in their mind as what the item being negotiated is worth.
Use this tactic with caution, but if you’re confident that you can come up with an anchor price that will work, you may want to try it.
Don’t Settle for a Bad Deal: Another cognitive bias that can lead to less-than-ideal acquisitions is something called the Sunk Costs Fallacy. It’s a glitch that tells us that it’s a mistake to walk away when we’ve already made an investment of time or money.
You calculated your walk away price for a reason. If a buyer won’t give you what you know your company is worth, then you should walk away. Not every deal is worth taking.
Bring an M&A Advisor with You: Finally, consider hiring an M&A advisor to help you out during the negotiations. Specifically, look for someone who has more than one exit under their belt as a seller. Many M&A advisors only know the buyer’s side of things, and don’t understand the unique needs and concerns of founders. At NorthStar Venture Partners, we’ve been on your side of the table and we can help you negotiate a great deal.
Benefits of Hiring an M&A Advisory Firm: The process of selling your startup can be a whirlwind. From organizing your financials to negotiating with buyers, a lot goes into getting the best deal for your company. As a startup founder, you most likely aren’t prepared to navigate the selling process. That’s why we recommend working with an M&A advisory firm. Specifically, you need a firm run by people who understand what it’s like to be on your side of the deal. Here are some benefits of hiring an M&A advisory firm for the sale of your business.
You’ll Save Time: The first big benefit of hiring an M&A advisory firm is that they’ll coach you through the process so you don’t waste time trying to research everything on your own. Some firms even handle most of the back and forth of selling your company for you. You’ll still need to be involved and bring your advisor up to speed on the unique qualities of your business, but they’ll handle a lot of the legwork — leaving you free to run your business and explore your next venture.
They’ll Bring New Buyers to the Table: M&A advisors have a lot of contacts because most focus on connecting startup founders and buyers for these deals. Finding the right person to sell your startup to is crucial, which makes these connections invaluable for you. Buyers have usually acquired other companies in the past, so they often think they can negotiate the deal to be more in their favor.
Your M&A advisor will help you find someone who won’t try to cheat you in the deal. They can pull from their contacts, access their network on your behalf, and connect you with people you wouldn’t have found on your own.
They Can Help You Overcome Common Obstacles to M&A: Mergers and acquisitions can happen quickly or slowly. When there are delays, they’re often due to some of the most common obstacles faced by both sellers and buyers, including:
- Uncertainty in the global or US market
- Delays in pending legislation
- Negotiation mistakes or missteps
One of the issues with founders who represent themselves while selling their startup is that they lack the experience to navigate the potential pitfalls along the way. Hiring an M&A advisory firm will allow you to sidestep those issues. An experienced advisor, particularly one who’s been on the selling side of an acquisition, will be able to help you predict, avoid and overcome obstacles that could inhibit the success of the transaction.
They Can Help You Negotiate a Better Price for Your Company: Even if you have completed a thorough business valuation and know your asking price and your walking-away point for negotiations, you still might end up leaving money on the table if you’re not careful. M&A advisory firms will help you strategize a plan for getting the deal you want. They’ll be able to look at your business, gauge the market interest and potential buyers’ interest, and work with you to negotiate the best possible sale price for your company.
They’ll Give You Peace of Mind: Let’s face it, selling your business can be stressful even if you’ve dotted all the I’s and crossed all the T’s. There’s a reason that people hire experts to do complicated deals — and after you account for the time and money you’ll save, you can see why it makes sense to have an expert negotiator in your corner to provide you with peace of mind during the negotiations.
Keep in mind that the best advisor to represent you is someone who’s got experience on your side of the table. Many M&A advisors represent buyers. They’ll represent you for a price, but it’s important to hire someone who has your best interests at heart.
If you’re planning to sell your startup, the smartest decision you make might be hiring a professional M&A advisory firm to represent you and get you the best deal possible.