Where Should You Start?
One of the first things to consider when starting a company is an exit plan. What do you want your legacy to look like? What aspirations do you have for your employees and clients? Whether it’s prepping for a sale or preparing your business for the long term, these are important pieces to consider.
On top of that, as the business owner, what do you want for yourself? You’ve successfully led a company to the point of a sale, so what are your personal financial needs and lifestyle goals? What will help you achieve them?
Understanding Your Options
When it comes to a sale, there are what seems like endless options to consider: private equity, strategic acquisition, merger, partial sale, etc. Understanding your options can help you determine which path will lead to success for you and your company.
Private Equity (PE): Private equity often has a negative connotation. For many, it immediately evokes the idea of cash up front, followed by significant layoffs and cuts wrapped in a pressure-cooker environment, because your business will likely be sold a couple of years later.
However, it’s important to note that not every PE firm works this way. The practice of a buy-and-hold forever PE model has become more sought after in recent years because it preserves the legacy and fabric of the company without disruption. If that option sounds appealing as a business owner, you can also explore decentralization, where your company will have even more freedom to continue operating independently post-sale.
Strategic acquisition: A strategic acquisition can be beneficial because you often receive the full cash price at closing, and the established operator will take over the company. However, if your business legacy is non-negotiable to you, this may not be the best route. In the case of strategic acquisitions, your company will often be fully integrated into the buyer.
Mergers: When mergers are successful, they can be highly beneficial. Their notorious reputation for failure in the early days has actually turned a new leaf, showing that nearly 70% of mergers now succeed, and even those that don’t still create some value. As with all options, you need to consider what you want to achieve through a merger.
Other things to consider when doing a merger:
- Why are you merging?
- Does the company have a shared vision?
- Is this helping with geography or scale?
- Will this help you offer more complementary services?
If you’re unsure, this might not be the best option for you.
Partial Sale: When considering a partial sale, be clear about what you want. Ask yourself how much cash you need now, how much ownership and control you want to retain, and how long you intend to stay in the business. Engaging in a partial sale means bringing on a partner, and you will lose absolute control over major decisions.
Becoming Due Diligence Ready
After you’ve decided on your ideal buyer, getting your “house” in order will make your life a lot easier. What should you prepare? Mainly, your financials, contracts, KPIs, and operational documentation well in advance. You should also aim to maintain clean and auditable data since the acquiring entity will need to review every element of your financials. Additionally, if you anticipate any potential issues that will be uncovered during due diligence, address them now. Taking these steps will leave you feeling confident about what you are bringing to the table and create a smoother diligence process.
Evaluating a Potential Buyer
When evaluating an M&A offer, it is easy to get caught up in the headline price, but the deal’s structure often reveals the real story. Imagine you are selling your house for $1 million. One buyer offers $950,000 in cash, while another meets your asking price but attaches a $100,000 repair provision for potential issues discovered later. They might be giving you what you are asking for, but it comes with more risk attached.
The same logic applies here. A seemingly higher offer might include earnouts, equity components, or extended payout schedules that complicate the seller’s position. Understanding how terms like these affect timing, certainty, and post-sale obligations is crucial. Many sellers discover too late that what initially appeared to be a great deal shrinks after due diligence reveals new conditions. In any transaction, it is not just about the top-line number; it is about what you are actually getting, when, and under what terms.
Learn from Common Pitfalls
During due diligence, the small details often determine whether a deal succeeds. The quality of earnings, or Q of E, is a critical component of this process. This requires a thorough examination of financials, contracts, and operations to confirm actual performance. It’s where both sides reach a shared understanding of the company’s true value.
Sellers should avoid what we call “juicing the business.” This is preparing for sale by significantly cutting costs, streamlining the business to bare bones, and then putting it up for sale. Often, once you get to due diligence, you will find out that customers are unhappy, which can kill a deal. Sustainable, transparent performance holds far more value than quick fixes. It’s common for MSPs to see their final price drop once deeper analysis reveals the full picture. Ultimately, prepping yourself, and avoiding juicing the business will leave less room for confusion on final selling price.
Making the Right Decision for You
Selling a business you have poured yourself into isn’t a light or easy decision. Beyond the financial planning, it takes emotional readiness. While some founders stay on, others are ready to pursue new ventures. However, if you choose the right buyer for your priorities, your legacy, brand and team will live on and continue to grow.
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