Some entrepreneurs want to build and run a business for decades and pass it on to the next generation. Others, whether intentionally or through a serendipitous opportunity, choose to sell their company through an acquisition deal.
If an acquisition deal is part of your business exit strategy, there’s a lot more preparation work than just running your numbers and compiling personnel files. Here’s what you need to know about setting your buyer, your team and yourself up for success during this significant transition in your professional life.
Establishing goals and processes
Zawadi Bryant, whose company Night Lite Pediatrics was recently acquired by Mednax, says it’s important to understand your reason for seeking an acquisition deal before you begin any negotiations.
“Your 'why' will provide a reason to stay focused on the big picture and not get derailed by the small stuff,” said Bryant, who now serves as Mednax’s president of acute care pediatrics. “Don't dream about the month-long vacation on the French Riviera. If you need to walk away from the deal, your heart and mind won't be committed to popping champagne bottles.”
She also noted that a small business seeking a buyer shouldn’t be completely dependent on the owner to make decisions.
“We established processes and systems and a management team that operates the business with little oversight from me,” Bryant said. “It was an investment of time and money to build a strong management team and infrastructure, but [it was] a necessity to get us to this point.”
[Read more: What Is a SPAC? What Small Businesses Should Know]
Preparing your small business for an acquisition
If you’re about to be acquired, there a few important things to do before, during and after the negotiation and closing process to prepare your company:
Before an acquisition
Prior to acquisition, it’s important to make your business as “buyer-ready” as possible, said Bryant. She recommended taking the following actions:
- Improve the areas of your business that are most valuable to a buyer.
- Know your valuation range and get a third-party assessment of your preparedness for due diligence.
- Establish an advisory board and a transition team (M&A attorney, investment banker/broker, CPA and financial advisor).
- Enlist your management team to help you keep the company running smoothly and performing at its best during due diligence.
Brent Williams, who sold his company Dental Select to Ameritas Life Insurance Corp, also emphasized the importance of preparing your finances for buyer review, especially your profit and loss (P&L), revenue numbers and EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization).
[Read more: Due Diligence: What Startups Need to Know]
When a company is acquired … [the] small business owner doesn’t control it anymore and things can change—and they usually do. So you have to overcome that fear.
Brent Williams, founder of Dental Select
During the negotiations and due diligence process
Once an offer has been made on your company, Bryant advised keeping the sales process confidential and closely kept between as few people as possible, since the details aren’t final and the sale could still fall through. She also recommended establishing frequent checkpoint meetings with key stakeholders to keep the process moving.
“Time is a deal killer,” she said.
After the deal closes
When your acquisition deal is finalized, make the announcement a celebratory event for your team, and provide clear, consistent and frequent communication during the integration process, said Bryant. Here are a few things to address with your team:
- Check in with your employees. “The transition may cause some anxiety and sense of loss for some employees,” explained Bryant. “Do not downplay how employees are feeling.”
- Clearly outline the changes and the positives. “Highlight all the things that will stay the same and minimize and manage the things that are changing,” she said. “Outline the positives to your team and explain what's in it for them.”
- Establish milestones for the integration process. “You want to move on to a new normal as soon as possible,” Bryant said.
Williams noted that executive buy-in is especially critical to a smooth transition process.
“If [your leadership team] doesn’t benefit in some way, then to them, it’s just fear of the unknown,” said Williams. “When a company is acquired … [the] small business owner doesn’t control it anymore and things can change—and they usually do. So you have to overcome that fear.”
[Read more: Buying an Existing Business? Here’s How to Finance Your Purchase]
What’s next? How to prepare yourself as a founder
Whether you’re planning to stay on or fully exit the company after your acquisition is finalized, the big question every small business owner needs to ask themselves is: What comes next?
Founders like Bryant who stay on with the buying company will need to prepare themselves for a different type of leadership role than they’re used to. The best way to do this is to spend time with the company’s leadership team and ask the right questions to establish expectations for both parties.
“Prepare yourself to be a member of a leadership team and not the leader,” Bryant told CO—. “Get all commitments and promises in writing so you are starting off on the same page. Depending on the terms of your deal, you may be employed with the company for a period of time. Doing your own due diligence will make your time at the company much more successful.”
Entrepreneurs who are leaving their companies should think about their next move ahead of time and don’t look back, said Williams. Letting go of the business you built will be difficult, and it helps to have something new to focus on once you officially leave your role with the business.
“My company was part of my identity,” said Williams. “You feel a sense of loss … [and] I wasn’t prepared for that. You have to replace that with something else.”
CO— aims to bring you inspiration from leading respected experts. However, before making any business decision, you should consult a professional who can advise you based on your individual situation.
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