Technology M&A: 7 things to do 13 months prior to selling your tech business

1) Organize the Profit & Loss Statements:

Don't make the buyer's job of learning about the company difficult. 13 months out from selling your business is the perfect time to organize the P&L’s, so in 13 months you can have a much improved “Trailing 12 Months P&L’s” for buyers to look at. Buyers want to look at income statements which show as much detail as possible. For example with revenue categories as opposed to showing "Service Revenues", buyers want to know how much revenue is generated over time from each service the company offers. Of course buyers are going to want to know this and will ask for it so why not make the educational process easier. On the expense end of the P&L, as opposed to showing "Management Salaries", buyers want to see how much each manager earned. Why? because in many cases not every manager will be retained following an acquisition ... and the reality is, not every manager wants to stay following the acquisition. The same applies to each of the expense catagories down to the basics such as "Software Licenses". Of course buyers want to know how much is being spent each month for each software product.

There shouldn't be a long story associated with reading the financial statements for the first time. Typically the longer the story required to understand the financial statements as they relate to the current status of the business, the worse the situation is.

2) Organize the Balance Sheets:

• Update the balance sheet each quarter, as opposed to just a single “Year End” version.
• Clean up the A/R.
• Remove, properly name and/or consolidate the personal items on the balance sheet. The balance sheet should be a story about the business, not a story about the founder’s personal life.

3) Corporate Structure:

Meet with your attorney and accountant to review the tax implications under both a stock sale and an asset sale, and scenarios selling <50% and >50% of the company. Being 13 months out will give you time to make legal structure changes which could make a dramatic difference in the after tax proceeds of the sale.

4) Non Core Assets:

• Either sell these assets during the 13 month period (preferably sooner rather than later to show the non-affect of these assets on the business) … or have a plan for the non-core assets if the buyer doesn’t want or will not fully value them.
• If your business is actually 2-3 businesses under one brand name sharing assets and personnel, this is the time to start cleaning up. This takes time and if not addressed properly, could delay the sale, reduce the value of the sale, or even prevent the sale from happening.

5) Disputes (legal or not):

Settle and document all disputes with former/existing employees, vendors, customers, lenders, partners, etc. Unsettled disputes can prevent any merger or acquisition from occuring.

6) Focus on the core business:

This is not the time to invest in a capital intensive project which will not be positive cash flow for a few years. If a new product or service offering is pursued, great, just keep detailed accounting records on what was allocated to each new product/service in case you pull back from this you can attempt to get an adjustment with the buyer on these investments.

7) Prepare for your new life:

This may sound silly but it has caused sellers problems before. They held up a sale because their next phase in life wasn’t ready and they wanted to make the jump from one to the other.

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FYI, I send out a “Weekly Internet M&A Deal List”. This list contains between 30-40 deals. Each week it is sent out to 1,000s of Internet executives and financial buyers around the world. If you would like to see the latest copy, message me. If you would like to be added to the auto weekly version, you can either sign up on my web site or message me and I will add you.

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