Routinely thinking about your exit plan is key to succeeding as an entrepreneur. As you move closer to an exit, these three tips can help prepare you and your team for what lies ahead.
Build a Strong Deal Team
Your deal team should include both indispensable company representatives and external advisors, including:
- The CEO, who will likely lead the team.
- The board of directors, who must approve the final deal package.
- Employees. Include key staff, including those with institutional knowledge, in the deal team.
- Investment bankers help lead the deal team and advise you about what to expect.
- Lawyers can help you understand the legal and financial implications of deal structure.
- Other outside experts may help with due diligence or provide other expertise.
From the very beginning, the deal team must consider the deal goals, and weigh how best to structure the transaction to achieve those goals. Some shareholders may simply want to cash out, while others may have grave concerns about the deal itself.
As part of the exit, buyers will want to closely evaluate the company via a comprehensive due diligence process. You can speed this process up and boost buyer confidence with a little due diligence of your own. Be sure to explore the following:
- Corporate governance. Your accounts and records must be accurate and up to date. The minutes of meetings and all relevant resolutions should be carefully reviewed to ensure that all actions your company has taken have followed the right procedure.
- Cap table. The cap table must accurately indicate all equity grants and stocks.
- Financial statements. Ensure your quarterly and annual statements are available, audited, and accurate.
- Filings and permits. Ensure you have all relevant permits anywhere where you do business.
- Taxes. Taxes are a common stumbling block in many transactions. Ensure you are in compliance with all tax obligations, and if not, be prepared to address any and all deficiencies.
- Intellectual property. Many companies hire contractors, or do not clearly outline IP rights in their employee agreements. Ensure you own all creative and intellectual property. If you don’t, now is the time to buy the rights and draft contracts memorializing these rights.
- Consultants and employees. Ensure no staff members are misclassified as contractors, and that exempt and non-exempt workers have the right contracts and payment structure.
- Litigation. Assess for any potential areas of litigation, as well as any ongoing litigation or settlement negotiations. Be prepared to explain these areas of liability to the buyer.
Undertaking due diligence on your own can feel exhausting, or even like a bit of overkill. But it prevents unpleasant surprises from destroying the deal down the road. Get ahead of things now so you can address problems before the buyer uses them as an excuse to offer a lower price or even walk away from the transaction. The early bird gets the worm, and the highest asking price goes to the seller who gets their books in order.