The best resources to prepare you for an acquisition 💸

With every new business owner who signs up to our acquisition marketplace BitsForDigits, we get new questions around how to best prepare for an acquisition.

I thought it might be a good idea to collect a few topics to be aware of and the best resources that go along with them.

Some of the resources we have written ourselves, but many are great articles from others in the industry.

What is your motivation?

Why are you interested in an acquisition? That question might be less easy to answer than it appears on the surface.

Ready to move on to the next project? Retirement with sipping mai tais at the beach? Take some chips off the table and keep working?

Whatever it is, have the answer ready. An acquirer will pose this question within the first 2 minutes of your first conversation.

• Reasons to sell
• Should you sell at all?

How much do you want to sell?

Everyone knows selling their business and having nothing to do with it afterwards. The full acquisition. The exit.

But there are also partial acquisitions, namely minority and majority deals in which the owner retains a large or small stake in the business.

Get familiar with your options to sell as much or as little of your business as you are comfortable with.

• Overview
• Selling a minority stake
• Selling a majority stake
• Partial sales vs full acquisitions
• Basecamp's minority sale

Get your metrics right

A potential acquirer will ask you for many industry-specific metrics. You will most likely be familiar with them already anyway, but this is a great opportunity to brush up.

Before listing your business to sell, see if the important metrics are where they should be to make your company as attractive as possible.

This could be simple things like "Could I cut cost somewhere?" or "Are there any short-term SEO fixes I could make?". But there are also a few more advanced metrics that are worth being aware of.

• Internet business metrics
• Advanced SaaS metrics
• Advanced eCommerce metrics

Create a P&L

A profit and loss (P&L) statement refers to a financial statement that summarizes the revenues, costs, and expenses of your business.

It's likely the first thing a potential acquirer will ask for to get a better understand of the business.

• Overview
• Templates
• Example P&L by @levelsio
• Create a virtual data room and upload it there

Have a valuation in mind

Most businesses get valued as a multiple of their profits / "Seller's Discretionary Earnings" or (if the company has a lot of growth and profits were constantly reinvested) revenue.

Having a realistic valuation in mind for your business sets a good base for a negotiation with a prospective acquirer.

The important term here is "realistic". Picking a revenue multiple with which some Sequoia-backed startup just raised their Series A is a non-starter for most buyers.

• Overview
• What the hell are Seller’s Discretionary Earnings?
• Valuation calculator
• SaaS valuation calculator

Create a transition plan

The buyer will acquire your business. Then what?

Any acquirer will want to see a plan for what you, the owner, will do help them transition into the business. Obviously this is more important for majority & full acquisitions, compared to minority stake sales.

Besides transitioning over Stripe billing, think about things like "will you stay on for a few months to help out with the transition?".

• Overview
• Checklist

Consider getting an advisor

Odds are this is your first time getting acquired.

And you will most likely negotiate with someone whose main job is acquiring businesses just like yours.

Getting an advisor can seem expensive, but it surely levels the playing field. They can also be incredible help with subjects like taxes and getting the deal structure right.

• Overview
• Advisor Directory

What are you actually selling?

Are you selling the company or its assets? There are some big differences between asset sales and stock sales.

• Overview

Types of potential acquirers

There are different types of people and institutions who might want to acquire your business. It is worth knowing what they are looking for so you can choose who to engage with.

• Micro PEs
• Acquisition entrepreneurs
• Strategic buyers
• Angels
• and more...

Vet potential acquirers

I checked some other acquisition marketplaces and they tend to have a ratio of 34 potential buyers for every 1 business that lists. That's a lot of buyers.

And many of them are window shoppers and will waste your time.

To not spend too much of your time in conversations that are bound to go nowhere, vet potential buyers. To do so, you should take a look at their profile (e.g. do they have relevant expertise, have they bought a business before) and ask for proof of funds (i.e. can they actually afford the acquisition).

• Overview
• Questions checklist

This is just a starting guide, otherwise this would be 20,000 words.

If there are big points that I did not include (about 10 come to mind already) let me know and I can maybe insert them above.

Also, if you have amazing resources you'd like to see reflected here, let me know.

Last thing. If you are looking for an acquisition, check out BitsForDigits. 😉