Guide to Selling Your Startup Company
Most founders launch a startup because they think they have an idea that will turn into a valuable and profitable product or service.
Many successful startups will grow to the point where it can have an initial public offering (IPO), or the startup is acquired. In fact, mergers and acquisitions (M&A), not IPOs, are how most startups exit. In fact, you’re 110 times more likely to be acquired than go public. If your goal is to sell your startup, this guide will walk you through the stages of preparing to sell, finding a buyer, negotiating terms, and closing the deal.
Kruze Consulting clients are twice as likely to be acquired as the average startup, according to data from Carta. They’re also much more likely to have raised subsequent rounds of capital!
Ideally, you’ll need to start getting ready about 18 months before you want to close a deal. You’re going to need time to develop relationships with possible buyers, and to make sure your company is as strong as possible before the sale.
M&A
Kruze helped us all the way through our journey - from our seed round to our A to our eventual acquisition by a public company.
Omar Tawakol
Founder and CEO
M&A
Kruze knows R&D, SAFE Notes, SaaS, and venture debt and they gave us valuable advice. We have 100% confidence in their work.
Farhad Massoudi
CEO
Why do startups get sold?
To understand why a startup gets sold, you need to look at founders and investors. A decision to sell typically begins with one of these two groups. Let’s look at both:
Founders who want to sell. Founders may decide to sell their companies for many reasons, including:
- Personal reasons. Health or family concerns, a good sale opportunity, potential retirement, or burnout are all reasons founders could decide to sell a startup.
- Business challenges. If a startup is reaching the end of its runway, hasn’t achieved profitability, can’t find investors, or faces poor market conditions, founders could decide the best option is to sell the company.
Strategic decisions. A founder who has taken the startup as far as she or he can may see a sale as the best way to move the company forward. A sale may allow the company to continue growing and evolving, and letting the startup be acquired could provide new capital and resources to build the business.
Investors who want to sell. If a startup is successful, investors can be excited to sell to capture the return on their investment. Not all investments are successful, and if a startup doesn’t meet investor expectations, VCs may decide to exit. One thing to note: VCs and founders are not always aligned on what is best for a startup, so good investor management requires founders to carefully listen to their investors to spot their motivations. Some reasons a VC might sell their investment in a startup include:
- Achieved investment objectives. Once the startup has solid financial performance and has reached targets successfully, like revenue milestones, market share, a high valuation, or user growth, it may be appropriate to sell and realize investment returns.
- Unsolicited acquisition offers. If another company offers to acquire the company at an attractive price, that may be an exit opportunity for investors. The startup may offer strategic synergies that make it valuable to the acquiring company.
- Market conditions. Favorable market conditions might cause VCs to sell before a potential downturn. VCs could also sell if market conditions are poor and the company isn’t likely to succeed.
- Portfolio management. VCs often need to refocus or rebalance their investment portfolios, to free up cash for new investments or because they are pursuing a different investment strategy. Another reason is that the VC fund is reaching the end of its investment horizon, and the firm needs to exit from some investments to return capital to its investors. Or, sometimes partners have taken on too many board memberships and want to pare down their portfolio to free up time to focus on newer opportunities.
- Strategic misalignment. If a startup’s direction or strategy diverges from the VC fund’s investment strategy, it may make sense to sell the startup and focus on opportunities that fit the fund’s investment strategy better.
- Underperformance. VCs might sell a startup that’s facing obstacles or problems. Things like high burn rate, unfavorable regulatory issues, changes in the competitive landscape, operational issues, or management disputes or changes could cause investors to sell.
VCs don’t consider getting their money back - or even doubling or tripling their investment - a success. So founders need to carefully manage their investors’ expectations…
Types of startup acquisitions
There are two major types of company acquisitions, and a third that isn’t really an exit but usually gets lumped in as one: Full acquisitions, technically called Equity Sales/Exits, where the acquiring company is focused on the products or services of another company, and acqui-hires, where companies are acquired to get a skilled workforce. The third type is an asset sale, where buyers purchase only selected assets, and not the whole company.
Full acquisition
Asset Sale
Acqui-hire
Full acquisition
A full acquisition is where one company purchases a target company in its entirety, including all assets, liabilities, products or services, intellectual property, and employees. The objective is to get a fully operational business, to expand market share, add products or services, acquire technology, or eliminate the target company as competition.
The acquiring company can choose to integrate the target company’s operations, merge it with an existing division, or maintain it as a separate entity, depending on the company’s strategic goals. The target company continues to operate but under the strategic direction of the acquiring company.
Asset sale
Asset purchases are more limited than full acquisitions. In general, for an asset purchase buyers pick which assets to buy, and exclude all or most of the associated liabilities of the target company, like taxes, creditor claims, and any potential legal liability.
Acqui-hire
Acqui-hires describe scenarios where companies acquire other companies primarily for their talented employees, rather than its products or services. The acquiring company gets skilled personnel to contribute to their ongoing or future projects. Team acquisitions help companies tap into talent they might not be able to find through traditional hiring processes. The acquired employees are often assigned to new areas in the acquiring company, so their expertise can accelerate innovation and drive product development. These kinds of sales are often positioned on social media as a “win” by the investors and the founders. And, while it’s true that any kind of an exit is pretty amazing, many acqui-hires are good returns for investors and may leave founders without any real, positive economic outcome.
Preparing for the sale
Summary
Selling your startup is a complex and extended process. The steps involved in negotiating a sale include:
- Prepare for the sale. Make sure you’re ready, both personally and financially.
- Evaluate your finances. This includes cleaning up your books, financial statements, projections, capitalization table and more.
- Work with an experienced attorney. Your attorney will help you make sure you’re legally ready for a sale, your company’s legal structure is in order, your assets are documented, and you’re in legal compliance.
- Develop a sale strategy. You’ll need a clear plan that aligns with your personal and business goals.
- Talk to your board and/or investors. Clear and honest communication will help you work with your investors and board, find out what their expectations are, and address any potential conflicts.
- Understand the payouts that your shareholders will receive. Liquidation preferences, participation rights, and seniority can affect what your investors receive, and therefore the amount you will receive.
- Locate potential buyers. You’ll need a compelling narrative on the value of your business to help you market it, and you can locate potential buyers by tapping your professional network and/or working with investment bankers.
- Negotiate the sale. You’ll need to present your business with a presentation that highlights the potential of your startup and be ready to answer questions about your business operations, financials, and business strategy.
- Finalize the deal. You’ll need to participate in extensive due diligence before your lawyer drafts a purchase agreement and you close the deal.
Evaluate your readiness
- Personal readiness. Ensure you are mentally and emotionally prepared to sell. Are you busy with other business interests? Has your personal life changed, leaving you less time or interest in running your business? Have you stopped learning and don’t feel like you’re growing in your role? Are you tired or overwhelmed by running the business? All of these may be signs that you’re ready to sell - although many of them may be signs that you need a vacation and a chance to clear your head.
- Financial preparation. Your startup should be in a state where it can be attractive to potential buyers. This means that the business needs to have good momentum and financial metrics, and also needs to have good back-office hygiene so that due diligence will go smoothly. On the financial metrics side, if your company has healthy gross margins, increasing sales and a path to profitability (or better yet, profits!), it’s a good candidate for acquisition.
Financial preparation
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Financial records. You need to do a full clean-up of any financial records. Many startups (not Kruze clients!) can have messy financials. If that applies to you, you’re going to need to get your accounting books, contracts, intellectual property (IP), capitalization table, tax returns, and other company information in order. Make sure all your financial records are up-to-date and accurate. Some of the records that may be requested during due diligence include:
- Income Statements (Profit and Loss Statements) for the past 3-5 years.
- Balance Sheets for the past 3-5 years.
- Cash Flow Statements for the past 3-5 years.
- Tax Returns for the past 3-5 years.
- Accounts Receivable and Accounts Payable Aging Reports.
- Detailed List of Assets and Liabilities.
- Inventory Records.
- Sales Records and Projections.
- Expense Reports and Projections.
- Debt Agreements and Loan Documents.
- Equity Structure and Shareholder Agreements.
- Budgets and Forecasts.
- Employee Payroll and Benefit Records.
- Legal and Regulatory Compliance Documents
- Projections. Detailed financial projections will provide the acquiring company with a clear picture of revenue, expenses, and cash flow, to help the acquirers determine the value of the company. Financial projections also help the acquirer evaluate potential risks and opportunities for strategic planning. Financial projections also help with the post-acquisition integration, helping the acquirer determine which employees or departments should be kept or let go.
- Pricing. There are a variety of metrics that can be used to set a price for the sale of the startup, but ultimately the price will depend on the market ( determined by previous comparable acquisitions), and the sale price you and your investors agree to. It can take time to get investors, founders, and management to agree on an acceptable price. Liquidation preferences and other terms affect how much investors and founders will make during a sale. If the company isn’t doing well, all the parties may have to reset their pricing expectations.
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Financial Metrics. Ideally your startup is showing consistent revenue and profitable growth. You’ll want to consider the following metrics (you are tracking your metrics, right?):
- Customer lifetime value (CLV) – This shows how much a customer is worth to your business over the length of their relationship with you.
- Conversion rate – This measures how well your company is turning leads into customers.
- Churn rate – This is the rate at which your customers cancel or downgrade, and shows how much revenue you’re losing.
- Customer acquisition cost (CAC) – This is the amount your startup is spending to get new customers.
- Net promoter score (NPS) – This shows how likely your customers are to recommend your business to others.
- Recurring revenue (monthly and annual) – This shows how much repeatable, regular income your company is generating over time.
- Gross margin – This indicates how much profit your startup is making after paying for the direct costs of the products or services you sell.
Legal preparation
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Have a great attorney. An attorney with experience in startup sales is a necessity during the sales process. Your attorney will:
- Make sure all legal documents are accurately prepared and reviewed, to protect you from legal disputes.
- Help you negotiate favorable terms and conditions, so you’ll get the best possible deal.
- Inform you of any applicable regulatory requirements and help you navigate the legal landscape, which keeps you from facing delays or penalties.
- Legal structure. Make sure your business is legally structured for a sale, which means consulting an attorney. Kruze works with VC-backed startups, which are almost always Delaware C corporations, which means an equity sale will be transferring ownership shares. You’ll need to review your operating agreement and/or corporate bylaws to see if they have clauses affecting a sale.
- Intellectual property. Make sure you have secured any intellectual property (IP) rights and patents. Deals involving IP can be very complex and require significant documentation, because buyers are typically concerned about any post-sale infringements.
- Compliance. Proving your expertise and compliance readiness boosts your reputation and positions you as trustworthy, so make sure your startup complies with all regulatory requirements. This includes your tax obligations, like income and sales taxes; state and local taxes (SALT); payroll taxes; financing options and payments; and any other regulatory requirements your startup may be responsible for.
Strategic preparation
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Sale strategy. You’ll need a clear sale strategy that aligns with your personal and business goals - and take into account your investors’ goals (which we’ll discuss in a moment). Your exit strategy is a roadmap for selling your business. Your strategy should include:
- A comprehensive assessment of your company’s position. You need to thoroughly analyze your company’s strengths and weaknesses, financial health, market position, and growth potential. Either by yourself, or with your investors or bankers, creating a market map that shows how the larger players’ products, positioning and customer base aligns/competes/complements your own can help you be prepared to market the business.
- Realistic expectations. What are your goals for the sale? Is it financial gain, protecting what you’ve built, or improving growth under new ownership? Having clear expectations will help you when you start marketing your company.
- Advisory team. You’ll need to assemble a team of advisors, including lawyers, accountants, and possibly financial advisors. Don’t wait until you’re about to close a deal – getting the right team assembled early will allow them to identify obstacles before they affect – or even derail – your sale. You want professionals with strong experience in business transitions and due diligence. Not every startup works with an investment banker or broker, but the larger transactions that involve a sales process often do, as they can coordinate the outreach to many M&A teams at big companies.
- Sales deck. Remember how you needed a pitch deck to raise money from VCs? Well, you need something similar to be prepared to talk to potential acquirers. If you are working with an investment banker they will help you with this. These can be longer than traditional pitch decks, and may also have a deeper dive into the product, customer base and financials vs. a traditional VC pitch deck.
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Comprehensive integration plan. Companies are much more likely to be a successful acquisition if there is a strategy in place to integrate the business. Your buyer will need to establish a post-merger integration (PMI) plan, but you should outline an integration plan at a high level, including:
- Key milestones and deadlines.
- Staff roles, responsibilities, and authority, along with clear explanations of their areas of focus.
- Key performance indicators (KPIs) and business objectives, including descriptions of projects and timelines to achieve them.
Involving your investors
If you’re a founder who thinks it’s time to sell, you’ll need to involve your startup’s board or investors. This can be nerve-wracking – if your startup is venture-backed, you may feel pressure to not give up and keep building the business. So how can you handle breaking the news?
- Good communication. Ideally, you’ll have been maintaining an open line of communication with your investors from day one. But if you haven’t and are thinking of selling, start talking with them to get them bought in.
- Be honest. The best investor relationships are based on honesty and trust, and you should never blindside people who trusted you with their money.
- Understand your VC’s motivations. Recognize that VCs may have different priorities, such as fund lifecycle constraints, particular return expectations for your company, or the need to show returns to their limited partners. Understanding these factors can help you navigate discussions about selling.
- Address potential conflicts. Be prepared to discuss and resolve any misalignments between founders and VCs - or even between the different VCs who invested in the company. This might involve compromises on timing, valuation, or terms of the deal.
- Remember everyone wants a successful outcome. You’ll need to explain that a sale is the best option to your investors, and explain why. You all want to find the best outcome for the company, including founders, employees, and investors.
- Ask for input. Investors may have insights and feedback to share, and their network of contacts can help you locate potential buyers.
Shareholders and payouts
Payout distributions
When you sell your startup, shareholders are typically entitled to receive some form of payout. This can be cash, shares in the acquiring company, or a combination of both. VC funds will normally want a cash payout, to return to their investors. The amounts of any payouts and how they are distributed depends on the final sales agreement. How complicated can all this get? Very complicated. Make sure you are working with a great attorney, and that you’ve been creating good paperwork (such as a clean cap table) around your ownership and venture rounds from the beginning of the company.
How much do shareholders get?
To understand how much shareholders are entitled to receive, you’ll need to understand liquidation preferences and shareholder seniority. In a startup, founders and employees usually receive common stock. Startup investors, however, receive preferred stock, which carry rights and privileges that common stock doesn’t. When a startup is sold, the one of the most important provisions for founders to understand is how the liquidation preferences work.
Liquidation preferences
In the world of startup exits, liquidation preferences play a crucial role in determining how proceeds are distributed during an exit event. These investor rights essentially give venture capitalists (VCs) two options when a startup is sold:
- They can either claim their proportional ownership share of the company’s value, so basically taking proceeds equivalent to their percent ownership in the startup; or
- Recover their initial investment amount.
Naturally, VCs will opt for whichever choice yields the higher return, even if it means claiming the entire proceeds and leaving other stakeholders empty-handed. This mechanism acts as a protective measure for VCs, guaranteeing the recovery of their original investment before other shareholders receive any payout, particularly in scenarios where the exit valuation falls short of expectations.
If your exit valuation is similar to the amount raised in your venture round, you need to work closely with your attorney to understand how liquidation preferences will affect the proceeds for founders and common shareholders.
Participation rights
Liquidation preference participation can be categorized as non-participating, fully participating, or capped. In Silicon Valley, non-participating preferences are the norm. Investors involved in buyouts or growth stages, who acquire significant shares directly from founders or provide payouts upon investment, often favor participating preferred. With full participation, known as ‘participating preferred,’ investors not only recoup their initial investment but also share in the equity, receiving their ownership percentage in the company’s payout. It’s like getting paid twice at many exits! Non-participating preferred shareholders are only entitled to their initial investment amount or their pro rata share of the sale proceeds.
Seniority
The other factor that affects a shareholder’s payout is seniority, also called the preference stack. Seniority establishes the priority for paying shareholders. One of the rights given to preferred shareholders is seniority over common shareholders. However, seniority can also affect the payouts of preferred shareholders:
- Standard approach. In this approach, seniority is ranked in sort of reverse chronological order. So investors in the most recent funding round have seniority over investors from earlier funding rounds. So Series B investors have seniority over Series A, for example.
- Pari passu approach. Translated from Latin, “pari passu” means “with an equal step.” In other words, there’s no seniority. Series A investors would get the same access to any payouts as Series B.
- Hybrid approach. This is pretty much what it sounds like: A mixture of the two approaches. Investors are put into different seniority tiers, but within those groups, payments are distributed pari passu.
This is another situation where, if your exit valuation is similar to or lower than the valuation at which you raised capital, you need to consult closely with your lawyer. Additionally, if the sale price exceeds the valuation at which some investors invested but is lower than that of others, you’ll need to perform some complex calculations. It’s crucial to understand the motivations of your different VCs, as later-round investors may have very different perspectives compared to early-stage investors.
Finding potential buyers
Identify types of buyers
Potential buyers will probably be your direct or indirect competitors, so you’re probably already aware of existing players in your market.
- Strategic buyers. These are companies looking to enhance their own business operations through synergies with your startup, and typically are in the same industry and see acquisition as a faster path to growth than growing organically. Strategic buyers tend to buy small- and medium-sized businesses and usually plan to fully integrate your company with theirs.
- Financial buyers. These are normally investors looking for a profitable return on their purchase. Private equity firms are one example of a financial buyer. They typically have two goals – generating a high return and developing an exit plan. To do this, they usually prefer to retain the existing management team. We’ve also seen VC backed startups purchase some of our clients, acting as a hybrid financial buyer, as they take additional funding from their investors for the specific goal of acquiring.
Market the business
- Create a compelling narrative. Create a document detailing your business operations, financials, and growth potential. Cover your company’s journey, the problems you tried to address, any innovations you introduced, and how you’re different from your competitors. It’s a lot like your fundraising pitch, and just like investors, potential buyers want to invest in your vision.
- Tap your professional network. Just like networking can help you build a business, it can also help you sell one. Once you’re ready to present your company in the best possible light, contact your mentors, advisors, peers, and other contacts that have experience or connections in exiting startups. Professionals you work with, including bankers, accountants, and attorneys, may also be able to help you find potential buyers.
- Consider investment bankers. Consider hiring an investment banker or broker to help find potential buyers. The best ones already have contacts with qualified buyers and can speed up the process of getting a transaction going. However, it doesn’t make sense to hire a bulge bracket investment bank for a small exit – in our experience, tying the right-sized investment banker to the size of your startup will yield the best results. We understand the temptation to hire the investment bank with the biggest brand to sell your startup, but if you are a small deal then you’ll get the junior team and likely lower your chances of a successful sale.
Negotiating the sale
Initial meetings
- Take confidentiality seriously. Make sure you only approach buyers who are seriously interested in your business. Everyone who reviews your presentation should sign a non-disclosure agreement (NDA) to protect both you and the buyer. It makes sense to be careful with how much information you share at this point.
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Present your business. You’ve already crafted your narrative, so now you need to refine and practice it. Again, it’s much the same process as creating your fundraising pitch. Draft a presentation highlighting the strengths and potential of your startup, and ask your trusted advisors to review and critique it. Make sure you practice your presentation. Your presentation may include:
- An overview of your business and your products or services.
- Your company operating plan.
- Your marketing plan.
- Your sales projections.
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Your financial statements and information.
While you don’t need to include your asking price at this point, you should have a very clear idea of what your company is worth and what price you would like.
- Answer questions. Be prepared to answer detailed questions about your business operations, financials, and future projections.
Your asking price
Once you’ve been through initial meetings and the acquiring company has indicated interest, you’ll have to talk money. Fortunately, you’ve already got a starting point: the company valuation that you obtained during your financial preparation. Founders should make sure they’re comfortable with their valuation and ready to discuss why the startup is fairly priced. What founders should not do is:
- Inflate your numbers. Remember, the acquiring company is going to perform due diligence on your startup.
- Hide a problem. Again, the acquiring company will investigate your startup thoroughly, so disclose any issues. You want to be seen as credible and trustworthy. Don’t bet that the acquiring company is stupid and will miss something - addressing problems up front boost credibility and can help you control the conversation.
- Be hard to work with. Selling a company is much more like a job interview than your funding pitches. VCs often expect founders to have a healthy, or even exaggerated, sense of self-worth. Acquiring companies, on the other hand, want to see someone that’s easy to work with.
Finalizing the deal
Due diligence
- Preliminary agreement. Negotiate and sign a letter of intent (LOI, which is sometimes called an Indication of Interest, IOI) with the acquiring company outlining the basic terms of the sale. The LOI basically sets out the rules for the business sale, both from the buyer’s and the seller’s perspectives. While an LOI isn’t legally binding (see the final agreement), it will contain an initial list of the business assets the buyer wants to acquire, a suggested price, and timelines for completing the sale and the due diligence process. By laying out the expectations for the sale, the LOI helps to reduce any complications later. The LOI may also include a right of first refusal, where the current buyer is allowed to turn down the deal, if they choose. The LOI will often act as a template for the final purchase agreement.
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Buyer’s review. Be ready for the buyer to conduct a thorough review of your business. If you haven’t been through due diligence before as part of a fundraise, we provide a comprehensive explanation of the process. While a buyer may not request every item outlined in our due diligence checklist, the process will still be very in-depth and require significant work and time. Some things founders can do to expedite the due diligence process include:
- Assemble your documentation when you start looking for buyers. It is often helpful to have a team assigned to the diligence process, so items don’t get overlooked. Create a secure central document repository to store all documents digitally. You should have this ready as soon as you start your first, initial meetings. And it’s OK to have a gated approach to sharing the information - you may wish to not share customer information until further in the process, for example.
- Stay organized. The sales process may take some time, and your startup will continue to operate. New documents, like leases, contracts, current financial statements, and other materials should be updated regularly.
- Respond to requests promptly. Good communication is important during any sale process, but it’s critical during diligence. Provide all requested documents and information in a timely manner and answer all questions completely and thoroughly.
Purchase agreement
- Drafting the final agreement. A purchase agreement, also known as a business purchase agreement, share purchase agreement, or asset purchase agreement, is a legally binding contract between the acquiring company and your startup. It outlines the terms and conditions for the sale. You should always work with your lawyer to draft the final purchase agreement.
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Key terms. Ensure all important terms are clearly defined, including the purchase price, payment structure, and any contingencies. In general, the purchase agreement can include:
- The financial terms of the sale, including purchase price and any payment details, like an initial deposit and payment of the balance, if applicable.
- A description of everything being transferred, including specific assets, customer lists, vendor lists and contracts, trademarks, patents, copyrights, intellectual property (IP), or other assets.
- A full description of any of the startup’s debts that are being assumed by the buyer.
- Closing date, time, and location, and details of any title transfers.
- Any protections for the seller, such as any assets not included in the sale or assets being transferred in “as is” condition.
- Any contingencies the seller or buyer must meet before either is obligated to complete the sale, such as providing all financial and asset ownership documents.
- Any warranties, covenants, or guarantees made by the seller. Examples include confirming the seller is authorized to make the sale, statements that all taxes have been paid, there are no undisclosed contracts or claims on the business, etc. For some of these, you are better off if you’ve been working with a CPA like us for a number of years so that we can provide confidence that the compliance issues, like taxes, are current and up to date.
- Transfer or assignment of leases, licenses, permits, or accounts.
- Any noncompetition agreements prohibiting the seller from competing with the business after the sale.
- Any nondisclosure agreements that require the parties to maintain confidentiality about certain information.
- Corporations may need a stock purchase agreement. Note that the transfer of stock may have different tax implications than the transfer of assets, so buyer and seller should get expert tax advice as part of the purchase process.
- Holdback. Many startup sales include a holdback. A holdback is a portion of the purchase price that the buyer retains for a specified period after the sale closes. This serves as a form of security for the buyer against potential issues that may arise post-acquisition, such as undisclosed liabilities or breaches of representations and warranties, or may be based on the acquired entity hitting certain financial metrics (typically revenue targets).
Closing the deal
- Sign the agreement. If there is a closing meeting it should be attended by the seller with legal representation, any brokers or M&A advisors, and the buyer with legal representation. Other times, an escrow agent is used, and each party signs the appropriate documents as they become available and returns them to the escrow agent. Once all parties are satisfied and the escrow agent has everything from both parties, the deal is closed. .
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Transfer ownership. Complete the transfer of ownership, making sure all legal and regulatory requirements are met. Some items you may need to transfer include:
- Payroll and payroll agreements
- Customer relationships
- Supplier and vendor agreements
- Customer contracts
- Operating manuals and instructions
- Keys, alarm codes, access codes, and other security measures
- Employee handbooks
- Social media, software applications, and account logins
- Vehicle registrations
- Utility accounts
- Distributing proceeds. Your attorney will help you distribute the proceeds. Often an escrow account is set up to take the proceeds, and then the attorney coordinates the distribution of the proceeds to the shareholders. Remember to reserve proceeds to pay your advisors - your attorney should remind you to do this, but you’ll need to pay attorney fees, accountants, investment bankers and possibly other advisors who assisted on the sale.
Post-sale considerations
You’ve probably done a significant amount of work gathering and presenting information to find potential buyers, negotiate the terms of the sale, and keep your business running while all this takes place. There are some things you should keep in mind.
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Post-sale transition. Assist with a smooth transition if required by the agreement. Some of the loose ends you may need to tie up could include:
- Issuing employee paychecks and pay any remaining payroll taxes
- Paying any outstanding taxes
- Reporting any payments to contract workers
- Canceling your employer identification number (EIN) and close your business IRS account
- Paying remaining debts and collecting accounts receivable
- Canceling any business permits or licenses
- Transferring any leases
- Canceling insurance policies the buyer doesn’t assume
- Closing any lines of credit
- Notifying any outstanding creditors if you or the buyer will be making payments after closing
- Clarify your role and expectations. Understand your new position, responsibilities, and reporting structure. Discuss your long-term prospects within the company to ensure alignment and clear expectations.
- Embrace the new culture. Learn about the acquiring company’s values, norms, and work practices. Be open-minded and adaptable to different ways of doing things to integrate smoothly.
- Build relationships. Network with key stakeholders in various departments. Find mentors or allies who can help you navigate the new environment and support your transition.
- Maintain your entrepreneurial spirit. Look for opportunities to innovate within the larger structure. Share your startup mindset and experiences to add value and drive new initiatives.
- Manage your emotions. Prepare for potential feelings of loss of control or autonomy. Stay positive and focus on the opportunities ahead to maintain a productive mindset.
- Communicate effectively. Learn the company’s communication channels and protocols. Be transparent with your new team about your vision and goals to foster collaboration and trust.
- Understand the bigger picture. Learn about the company’s overall strategy and how your startup fits in. Align your efforts with the broader organizational objectives to contribute effectively.
- Be patient. Recognize that change takes time in larger organizations. Don’t expect to implement changes as quickly as you did in your startup, and allow for gradual adaptation.
- Take care of your team. Help your startup team members transition into their new roles. Advocate for their interests and career development to ensure their smooth integration.
- Manage your work-life balance. Adjust to potentially different work hours or expectations. Set boundaries to maintain a healthy work-life balance and prevent burnout.
- Continue learning. Take advantage of training and development opportunities. Stay updated on industry trends and the company’s evolving strategies to remain relevant and informed.
- Plan for the future. Consider your long-term career goals within the new company. Discuss potential paths for growth and advancement to ensure a fulfilling career trajectory.
Financial settlement
- Payment receipt. Make sure the agreed-upon payment is received in full. Based on the terms of your sale, you may receive payment in full at closing or there may be separate payments.
Professional advice
- Legal and financial advice. If you received a significant amount of money from the sale, you’re going to want advice on how to manage the proceeds from the sale and any ongoing responsibilities. Talk to your accountant, financial planner, and your attorney – it’s time well spent. You want to find the best way to use the proceeds from your sale.
Personal reflection
- Next steps. All that work leading up to the sale is hectic and stressful. You’ll also face the emotional impact of letting go of your startup. Take some time to reflect on your personal and professional goals post-sale and plan your next move, whether it’s starting a new venture, investing, or taking a break.
