This article is part of The Growth Stage section of 📕 Zero to Sold: How to Start, Run, and Sell a Bootstrapped Business.
Before any acquisition can happen, many prerequisites need to be in place. There will be an extensive due diligence process. Commonly, “buyer-side due diligence” is the procedure of an acquirer making sure that everything is in order with the business they are about to acquire. It’s a detailed investigation, making sure that everything you claimed and promised about your business is actually true.
You can prepare your company for this process to happen as smoothly as possible by following a few principles as you run your business. If you need to scramble to get everything ready for due diligence only days before it starts, you’ll add a lot of extra work at a time when you’re already under twice the workload: you’ll have to sort through a huge number of documents and conversations as well as keep running your business at the same time.
Selling the company can require a lot of work if you’re unprepared. It can be surprisingly easy and painless if you structure your business and operations as if you intend to easily hand it over one day. This is the moment when building the company in the “Built to Sell” way truly pays off. With all the automation and documentation efforts that you will have put into your business to make yourself as replaceable as possible, an acquirer will take a look into your business and see a well-structured and easy-to-transition company.
There are a number of steps that I have found particularly helpful, which led to the successful sale of our startup FeedbackPanda.
It starts with having all your relevant documents and resources securely stored in cloud-based data storage such as Dropbox or Google Drive. This allows you to access your own documents from anywhere, and it makes it easy to deliver access to the storage service when you sell. Many businesses will have their own document cloud solutions, so allowing them to integrate all of your business documents into their systems rather than manually importing everything is attractive.
Structure that storage in a way that makes it clear what each document is, what it’s for, and who may need to use it. Using extensive naming conventions is useful, as you want yourself and any future owner to be able to find relevant documents quickly. Keep your essential assets, such as logos and social media templates, in that storage as well. Ideally, all your non-code assets are securely locked up in the same storage service.
Financial Account Separation
Keep your business and your personal accounts separate. This starts with bank accounts. If you want to make sure you have a flawless separation between your private funds and the funds of your business, get a business bank account as soon as you can. While this will incur some fees in most cases, it is also good practice, and it will protect you from diminishing your personal accounts in case something goes wrong with your business.
Depending on what legal form your business takes, you will be required to have such a separation anyway. If you don’t exercise caution from the beginning, any audit of your books will raise concerns in some jurisdictions, and that can lead to hefty fines. If an acquirer purchases your entire business, they also acquire this particular risk. You can prevent this from having an impact on the purchase price by ensuring the personal and business records are cleanly separated .
This may be the most important thing to get right from the beginning. You can always untangle usernames and passwords at a later point, but a transaction that hit the wrong account and was taxed differently than it should have been cannot be reversed easily after the fact.
Service Account Separation
It’s also recommended that you keep your service accounts separate. Create a separate Google account for your business and use that to log into the services you use for your company via OAuth2, or use your business email and a strong password.
Keep all of the login details in a separate 1Password vault, and keep only logins and secure notes related to your business in there. That way, when you hand over your business, all you need to do is to invite your acquirer into that vault, and all relevant credentials will be available to them immediately.
In the beginning, you will likely have just one email address, like “email@example.com.” Mostly, because you don’t need another, but also, because if you’re using Google Accounts, you will pay per account. I recommend at least making an alias like “firstname.lastname@example.org” and logging into services using email and password whenever possible. The convenience of logging in with your founder account could be alluring in the beginning, but just like with your bank accounts, it will pay off to have everything separated from any account that is linked to you as a person.
It’s important to document everything—even how you’re documenting things. I don’t think there is a way to over-document when it comes to something as important as the inner workings of a business. Superfluous documentation can be ignored if it’s not needed. Still, there is no way to reconstruct what the original founder of the business did or meant to do when there is no trace of any document or instruction.
Write an extensive Operations Manual from day one. If you do something more than once in your business, write a Standard Operating Procedure for it. It’ll be great for transitioning your business over to your successor. Even the smallest task will need to be mentioned or explained, and creating an SOP as soon as you’re done with a new task will make sure it won’t be forgotten.
If you answer a question in your customer service tool, turn it into a knowledge base article and link to it in your Operations Manual. The more advanced knowledge base system will integrate with your customer service chat systems and suggest articles when they detect certain search terms. This will save you countless hours of customer support, and having the documentation in place will be a great training opportunity for your acquirer’s customer service agents, as it gives you the opportunity to gauge what types of problems your customers may experience.
Handing over such a document will be almost like a franchise: the new owner will know exactly how to deal with all parts of the business. They can immediately start running it and training their employees to take over critical functions. The more you document, the faster you can be replaced.