Quality consulting doubles the likelihood of startup acquisition

How can you quantify the impact of high-quality startup consulting on business outcomes? My firm, Kruze Consulting, has identified one method—startups with high-quality CPA consulting are twice as likely to be acquired as the average startup.

One of the most important outcomes startup founders and their venture capitalists want is to sell their startup and achieve an “exit.” Founders turn to boutique consulting firms to provide them with the advice, systems, and metrics they need to manage their growing businesses. But one of the biggest benefits that top accounting firms provide is critical advice when it comes time to sell their startup. And our data shows that founders are taking advantage of that CPA advice!

Carta, the largest provider of startup-focused capitalization software, regularly publishes helpful analytics aimed at helping startup founders and VCs. They recently published data on the performance of 3,067 startups that registered in 2018. Ultimately, only 161 of them were acquired: 5.2%. Kruze Consulting provides accounting and CFO services to over 800 U.S. venture-backed startups, and comparing its clients registered in 2018, Kruze found that over 11% were acquired.

So what causes this difference?

We believe this is at least partly due to our high-quality accounting!

Accountants offer key advice on exits

When a small business is acquired by a large public corporation, as has been the case for many of our clients (Apple, JP Morgan Chase, Cisco, etc.), due diligence is intense. Large acquirers have dedicated M&A teams, including accounting, tax, and finance groups. Navigating this difficult due diligence process is no easy feat, and getting your financial statements, tax returns, and financial ratios in order is only the first step. For business owners, having accountants as advisors who know the business and can call to answer technical due diligence questions is not only invaluable, but also a huge relief at a very difficult time.

External accountants keep businesses on track

We also found that many acquisition offers for startups come out of the blue. Partnership talks turn into acquisition talks; a major public competitor makes an acquisition and has to respond. If the startup didn’t use a high-quality accounting firm, the time it takes to catch up on due diligence materials back can derail the deal and kill it. For the buyer, buying a startup that has all of this information up to date, organized, and ready for due diligence instills confidence in the deal.

Solid accounting metrics contribute to greater business success

Of course, it’s not just about closing a deal. Startups with solid, reliable, constantly updated metrics are able to make better decisions across the board—whether it’s hiring, new products, new markets, etc. I believe (and have seen it myself) that founders with the ability to make informed decisions quickly will outperform the market and outlast the competition. Solid accounting makes companies run better, from a clearer understanding of how to manage cash flow, developing growth strategies, and hiring the right people at the right time.

Most acquisitions occur when a company is small enough to still be able to use an external accounting provider

Most startup acquisitions happen before Series B funding—93% of the companies in the sample that were acquired were pre-seed to Series A, according to Carta. In the early stages, many startups don’t put accounting operations first—favoring product and growth over operations. To founders in these early stages, this oversight often feels like a good thing. After all, founders are often stretched thin, wearing many hats, and their startups need to grow in order to survive and raise future capital. But failing to allocate adequate time and resources to the accounting stack can undo all the hard work of chasing growth and developing solid products. This is where outside accounting partners really help startups by being there to take the work off their shoulders and allowing them to continue focusing on growing their business.

The Important Role of Accountants in Client Success

As trusted advisors to startup founders, we as accountants play a critical role in guiding our clients through some of their most stressful moments—the challenges of growth and the complexities of the acquisition process. Our data shows quite clearly that startups with access to high-quality accountants perform better.

It’s a heritage that accountants can be proud of, and a strong reason why we chose this great profession.

It’s a mistake to assume that founders rely solely on accountants for compliance. In reality, founders come to us for strategic guidance, data-driven insights, and expert advice on navigating the financial aspects of running a business. By providing accurate, timely financial information and proactive recommendations, we enable our startup clients to make informed decisions that position them for success.

Our value as accountants shines brightest in moments when founders face risk. As trusted advisors to our clients, we play a key role in ensuring their companies are due diligence ready, have clean finances, and well-organized records—whenever they need them. Our deep understanding of their business and ability to provide quick, knowledgeable responses to due diligence inquiries can be the difference between a smooth transaction and a botched deal. And for those of us who have advised on many exits, the steady hand of experience is a value our clients will never forget.

At times, the work we do may seem routine or mundane, because let’s be honest, sometimes it can be. But we shouldn’t forget the profound impact we make on our clients’ lives during their most stressful moments. Our expertise, guidance, and unwavering support are the foundation on which founders build their dreams.

As accountants, we are more than just accountants. We are essential partners who provide stability and guidance to our clients as they navigate the complex business challenges they will ever face. Our work, while sometimes arduous, is a testament to our dedication and the critical role we play in shaping the future of business.

So, fellow accountants, take pride in the value you bring to your clients! Embrace the challenges and opportunities that come with being a trusted advisor. Remember, your impact goes far beyond the numbers on a spreadsheet. You are the backbone of the startup ecosystem, and your contributions are essential to the success of the companies you serve.