The number one axiom in M&A: Time Kills Deals. 

 

1. Be on accrual basis accounting, not cash. 99% of the time, the company that buys yours will be on an accrual basis, and that’s the way they will want to view your financials. 

2. When starting your company, set yourself up for a QSBS election to avoid paying taxes when you sell. Info here.

3. Establish a Board of Directors with quarterly meetings, even if it is only a formality.

4. Make sure all employees and contractors sign NDAs and assignability of IP/work agreements.

5. Have P&L statements for prior years (up to 5 years), a forecast for the rest of this year and next year (that you are willing to stand behind), and a Balance Sheet ready to go.

6. Make sure your Cap Table is up to date.

7. Keep your Organization Chart current.

8. Have an annual Quality of Earnings prepared by a reputable firm — the Buyer will have their own Q of E done, but, by you having one done preemptively, it will point out any issues upfront and speed the process along.

9. Have a team of advisors ready to act, including an M&A advisor, an M&A lawyer, an M&A tax advisor, and an M&A CFO (who can advise on a Net Working Capital peg).

10. Be clear on how the business will run post transaction. Will you, the Founder/CEO, stay on or is there someone else in your organization (COO/President) who can run it if the new owner needs someone to stay in place?

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P.S. Revenue growth and profit margin/growth are both important. In general, growth rate is more important for earlier-stage companies and profit for later-stage companies. Selling a company that is still losing money is a lot harder than selling a company that is making money.