Business Owner Resources

Building a business takes time and effort, and as a founder, you may start considering an exit strategy or seeking investment capital to accelerate growth. It's important to plan ahead and take necessary steps before entering into acquisitions or partnering with outside investors. Here are the top 10 actions you should consider taking:

1. Set clear objectives. Determine your goals, such as full liquidity, partial liquidity, or finding a value-added partner to fill operational or strategic gaps. Consider personal and professional objectives, family continuity, succession planning, and financial targets. Also, if you have other shareholders, it’s critical to make sure all parties are on the same page and that alignment is reached regarding how to proceed.


2. Choose the right fit. Assess whether a strategic buyer or private equity firm would be the best match. While strategic buyers may offer a higher valuation, that may come at a cost with the likely possibility of layoffs of some of the key managers (or even entire facilities) that helped you get to where you are today. You’ll want to consider the plans the investor has for your business - what is their vision and does it reconcile with what you want for your people?


3. Understand and prepare for key buyer priorities. All buyers, whether strategic or financial, value sustainable revenue, recurring income streams, diversified revenue sources, and a strong middle management team. Address as many of these aspects of your business in advance to boost the valuation of your business.


4. Implement good governance practices. Prioritize organizing your company's affairs, even if you're not pursuing investment capital. Have everything documented, make sure your employees are taken care of, and ensure important contracts and paperwork are easily accessible, preferably in a secure data room.


5. Address legal matters. Pay attention to legal aspects such as organizational documentation, intellectual property protection, and compliance with state tax laws. Addressing potential legal issues proactively will strengthen your position when dealing with investors.


6. Learn about M&A. Gain knowledge about the mergers and acquisitions process well in advance. Engage with professionals like diligence vendors, deal attorneys, advisors, private equity groups, investment bankers, and business brokers. Familiarize yourself with the terminology and understand the questions that may arise during the process.


7. Know your numbers and operations. Have a comprehensive understanding of your company's finances and operational intricacies. Familiarize yourself with key metrics such as EBITDA (earnings before interest, taxes, depreciation, and amortization) and be prepared to discuss any challenges along with potential solutions.


8. Stay connected to your customers and market. Deeply understand your customers, competitors, and the size of your target market. Identify any gaps between customer expectations and your offerings, and be prepared to discuss how you plan to bridge those gaps with the help of investment and partnerships.


9. Support your management team and employees. Ensure a smooth transition post-acquisition or investment by considering how to take care of your management team and other employees. Providing equity to key leaders can incentivize them to stay on board and enjoy the benefits of the deal.


10. Prepare for due diligence. Understand that investors have a fiduciary responsibility to thoroughly analyze your business before making a significant investment. Be ready to provide detailed financial reports and necessary paperwork. Recognize that this process is standard and not personal.

Bonus tip #11: Observe future partner behavior. During the courting phase, pay attention to the behavior and actions of potential partners. If you notice misalignment with your values or concerns, know that it's never too late to withdraw from a deal.

While taking these steps, remember that it's never too early to seek advice and guidance from experts like Georgia Oak, who can assist you at any stage of your journey, whether or not a partnership is on the horizon.

Special thanks to Mick Cochran of Kilpatrick Stockton, John Goldasich of Lazard, and Michael Albritton of EY-Parthenon for joining Michael Lonergan of Georgia Oak for a “Private Equity 101” panel discussion. This article is based upon their discussion.