9 Things to Consider Before Accepting an Offer on Your Company

January 25, 2017

11:20 am

While every founder in the world hopes to become the next Uber, most will settle for being acquired by them. After all, a huge payout can do wonders for the future of your entrepreneurial endeavors. However, if you do plan to sell, you need to make sure you aren’t getting taken advantage of. Don’t sell your business without asking the hard questions first.

We asked nine entrepreneurs what you should do to make sure the purchase of your company works out the way you expect it to. Check out what they had to say and get ready for a payday like you’ve never experienced:

Sit Down With Other Entrepreneurs Who Have Been There

There are a few reasons you should talk with other people who can relate to you in this situation. First, they can walk you through all of the ups, downs and hurdles they went through. Second, they can help you see the ‘other side’ of selling your company. What came next for them? What will be next for you? After talking with other entrepreneurs, we actually decided not to sell our company.

– Allie Siarto of LoudPixel

Outsource Your Valuations

What is your business worth? It’s not unusual to overvalue (à la ‘Shark Tank’) your business. Likewise, if you’re ready to sell, you may be tempted to just get out. Have a team of pros look at your books and give you an objective valuation of what you have to offer. This will also eliminate any regrets down the line.

– Nicole Munoz of Start Ranking Now

Avoid Being Tied to Performance-Based Financial Incentives

Once you sell your company, you are no longer in control. With every founder I have talked with, performance-based incentives have gone sideways. Timelines get thrown off by longer than expected integration, revenue targets didn’t take into account sales ramp and organization change, etc., and all create perverse incentives for the acquirer. Value your business for what it’s worth now.

– Trevor Sumner of LocalVox

Pay Attention to the Non-Compete Provision

Pay particular attention to the duration and geographic scope of the non-compete provision and what is included in the definition of a ‘competing venture’ to make sure that the agreement won’t prevent you from pursuing your next project. The last thing you want to do is to contractually handcuff yourself from turning the page to the next chapter in your life.

– Doug Bend of Bend Law Group, PC

Understand the Timeline

I’ve heard of so many situations where the acquisition takes much longer, or is much quicker, than some parties anticipated. Work with the purchasing organization to clearly define what will happen and when, and what you and your team’s responsibilities will be during the various transition phases.

– Alexandra Levit of PeopleResults

Get Competing Offers

When negotiating the sale of your company, there are few things that can drive interest and valuation higher than having multiple parties bidding on your company at the same time. If you are negotiating with only one buyer, you will have minimal leverage to get the buyer to raise his bid. However, when two or more buyers step up you can take the highest bid and ‘shop’ it to the others.

– Kristopher Jones of Pepperjam

Fully Understand the Specifics of the Offer

It’s easy to get overwhelmed about a potential acquisition. It’s also very easy to hear a total purchase price or get an offer for a multiple that makes sense for you and overlook key terms. Understand every detail. The terms can significantly alter the real proposed value. How much is up front? Are earn-outs involved? Is there a holdback clause? Non-competes? Know your best and worst outcomes.

– Shawn Schulze of AffAction

Ask the Hard Questions First

Make sure to get the big details and hard decisions hashed out first. Selling your business will take a lot of time and your business will most likely slow down while you go through the exercise of exploring the offer. If there is a deal-killer, make sure you find it out sooner rather than later.

– Travis Holt of Brush Creek Partners

Young Entrepreneur Council (YEC) is an invite-only organization comprised of the world’s most promising young entrepreneurs. YEC members generate billions of dollars in revenue and have created tens of thousands of jobs.

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Young Entrepreneur Council (YEC) is an invite-only organization comprised of the world's most promising young entrepreneurs. YEC members generate billions of dollars in revenue and have created tens of thousands of jobs.

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