28 Feb 10 Strategies to Sell Your Software Company This Year
It started with a dream, and now that dream has become a potentially lucrative reality. If you’re hoping to cash out this year, you need to know that selling a software company does not happen overnight. It requires some planning and support. Here are 10 steps you must take to make a lucrative exit.
- Know how much your company is worth. Bring in a professional valuation team to help you avoid over or underestimating the potential sale value of your company. Only a broker or other intermediary who has experience in your specific niche is qualified to value your company. Once you have a valuation, you can identify strategies for growing or retaining value between now and the sale.
- Think about sale timing. Timing is everything. Software companies have sold in recent years for valuation multiples of 3.34 to 5.25x. It’s impossible to know whether these multiples will go up or down for your specific business this year, but market factors in your niche can help with determining the right time.
- Build your prospectus. To sell your company, you must get your financials in order. Prospective buyers must know your company is a sound investment, so be prepared to provide financials for at least the past three years. If you are backed by venture capital, you may also need an audit to show you are following all standards.
- Get your own affairs in order. Selling your company marks a huge transition in your personal and financial life. Spend some time working with an advisor to ensure you have enough money for whatever comes next.
- Review funding options. You’ll need to assess funding options, particularly if you have a startup. You may need to get investor permission, or devise a timeline based on lender requirements.
- Deal with legacy software. Software development moves quickly. Launching a new application, though, doesn’t mean you can stop supporting new ones. And if you do, you may end up with unhappy customers who can tank the value of your company. Establish a plan before you put your business on the market.
- Put your technical prowess on display. Software is all about innovation. Potential buyers want to know what experience you have within trending sectors, so be sure to highlight newer innovations and emerging technologies.
- Focus on intellectual property. IP rights are a huge issue in the industry. Buyers want to know who owns what. So make sure you know, too, and that you have all of your documents in order. You may need to buy the IP rights to products or services you outsourced to contractors.
- Explore your options. A competitive bidding process wil fetch a higher price and better deal terms. So focus on several key buyers, not the first one who comes along.
- Stay on track. It may feel like you’re done growing your business when you’re ready to sell. But a sudden decline in value can scare off buyers, because it shows the company is dependent on you for success. You must continue hitting or exceeding milestones right up to closing.