As we enter into the new year, many people will start to contemplate M&A deals in their industry, particularly if the past year was successful. And even though interest rates are higher than they have been in recent history and that, according to the Wall Street Journal, the total value of M&A deals globally fell 37% from 2021, many mergers and acquisition advisors believe that this year will result in a significant increase in M&A activity.

With that said, if you are considering buying or selling in your industry or marketplace, there are a number of things that you should prepare for to make the process as smooth and efficient as possible:

1. 1. The Right People on the Bus: If you are thinking about acquiring a new company or selling your company, make sure you have the right advisory team around you. If you don’t already have a CFO in place who is familiar with contracts and due diligence, be sure to hire one as a fractional CFO (Hey, that’s us!). Similarly, you should also have a strong, knowledgeable, and experienced legal and business brokerage team.
  2. Get Your Books and Records Straight: It goes without saying that financial data is a critical component to closing a transaction. If you are looking to sell your business, first impressions are incredibly important. If a potential acquirer asks for basic information, like a balance sheet or income sheet through the recent quarter’s end, you should be able to provide it within a business day or two. If you cannot, alarm bells will sound for all potential buyers. The lack of accurate and transparent statements available is a sign that your processes and procedures may be unreliable. It also speaks to your level of precision, attention to details, and competency as an entrepreneur. Buying a business is similar to buying a home. If the foundation is not sound, then everything on top of it is unstable. Not having financial records is the equivalent of not having a strong foundation for your home.
  3. Get Strong Financing Plans: Whether you’re selling or buying your business, it is important to have a strong financing plan to ensure that once a company is taken over, there will be adequate capital in place to ensure business operations will be maintained during the transition. For example, if you’re selling your business and you’re planning on receiving payments over an extended period of time, you need to be sure that the company that is buying you has adequate resources available to make those payments. Even though you’re selling your business, you will always be connected to the acquirer as long as he or she owes you money. So it is your responsibility to make sure that you are selling it to the right person or company and that the leaders have the expertise and skills to maximize the value that you will receive. Conversely, if you’re buying a company or a new business, you need to make sure that you’re not draining resources from other aspects of the company in order to fund a new operation or new business. In addition to financial concerns, there will be non-financial issues to tackle such as integrating databases, ensuring streamlined process/procedures, and managing employee roles. Budgeting and planning for acquisitions of this kind requires a careful study of how to minimize risk as much as possible across the board.

Now that key economic factors seem to be stabilizing, many industry experts anticipate a great volume of M&A activity in the next 12 months. If you are anticipating expanding your business or are ready to move on from your company after running it for many years, now is the time to start planning. It is important to remain diligent over your key processes and procedures to demonstrate to third parties that your business has no significant red flags and will sustain its value post-transaction.

Takeaway: If you are not sure if your company is able and ready to withstand a due diligence process from a potential buyer or don’t know what to look for when buying a company, reach out to Brian or Scott at info@acceleratingcfo.com for a free consultation.

Brian Califano