Protect your financials until your optimal exit process is clear
A common mistake we see business owners make is when they receive a reach out from a potential acquirer, have a good conversation with them and it turns into the potential suitor asking if the owner would agree to share their financials. When is sharing your financials ok and when is it not?
It’s very normal and acceptable to share your financials with a potential suitor when you have 1.) Identified what your optimal exit process is (see our blog post of May 4, 2024) and sharing your financials is in alignment with the process you’ve established. 2.) You know the potential suitor very well and trust them having your confidential financial information for the purpose of making an offer.
The majority of time, it’s not recommended to share your financials with one-off reach outs that you might receive from a potential acquirer. Here are just a few of the reasons to think about as to why it’s not a good practice:
- When you send a suitor your financials, you are immediately playing defense. Because the potential acquirer uses your financials to build their narrative about what your business is and its future potential versus you building and delivering that narrative. You’ve missed the opportunity to present your financials WITH your narrative which is why financials should go with a pitch deck or additional information that positions your company in the best light.
- Soliciting a one-off offer means you will have nothing to compare the offer to. If a potential suitor asks for your financials, play this movie forward and ask yourself if an offer comes in, will I really know if it’s optimal since I won’t be able to compare it to much.
- In sharing financials with a single potential acquirer, you’re not allowing them to put their best foot forward. Seeing only your financials makes it a math exercise since they lack other critical pieces of information needed to place a strong valuation on your company. Be skeptical of an acquirer that says they can make you a great offer by just seeing your P&L and Balance Sheet as these don’t reflect the future potential of your business.
- When you send your financials to a suitor, that implies your willing to entertain a sale. But have you conducted a due diligence dress rehearsal to ensure your team and company can successfully withstand the probe the acquirer will conduct? Soliciting an offer only to realize too late that you personally and your company aren’t ready to support an efficient due diligence can cause stress and create all sorts of unnecessary problems with the sale.
We would never say never when it comes to sharing your financials with a single, potential suitor but there are many things to take into consideration before taking this step. To get to your future euphoric exit event, it will require establishing the optimal exit process so know this before ever sharing your confidential information.
