To sell an IT business successfully, there are a couple of steps you can follow to streamline the process.
1. Preparation for Sale
If your exit strategy is a sale, it’s important that you take sufficient time to get the business ready to be put on the market.
A first step may be cleaning up your financial records. You want to ensure your income statements, balance sheets, and various financial statements are in order. An external audit is an excellent way to get people to trust that your financials are correct.
As an IT business, you will also want to ensure that your intellectual property and contracts are in place. Ideally, you should be able to show that you’ve legally protected all the intellectual property you’re selling to the buyer.
One of the biggest determinants of value for an IT business is the percentage of recurring revenue. Managed services contracts are a great example of recurring revenue and these revenues are much more valuable than project-based/one-and-done types of revenues.
If you have premises included in the deal (office space for example) put in the effort to make cosmetic improvements. If necessary, you may have to do some repainting and fix broken fixtures and equipment.
2. Business Valuation
With your business ready for review, you can go ahead with a business valuation. This is designed to help you determine the value of your IT business. This is best done through a professional business valuation expert.
You may also wish to compare the recent selling price of companies in your industry that are of the same size as your own, to get a potential selling price. However, let this be just a guide as there are numerous factors that determined the final selling price of those businesses. Your business may be worth more. You don’t want to leave money on the table by underselling!
3. Business Marketing
With your business ready for sale and a business valuation done, it’s time to enter the marketplace.
Where do you list your business? How much information do you put out into the market? How do you sell discreetly without causing a mass exodus of staff from your company?
There’s a lot to consider.
Some of the more common pathways to marketing include:
Listing on business-for-sale websites: You can search for such sites based on industry, type of sale you want, and investors you’re looking for. Examples of business-for-sale websites are Bizquest.com, Businessesforsale.com, and Bizbuysell.com
Working with a business broker: A seasoned business broker is worth their weight in gold. They’ve been selling businesses for years and have therefore built a solid reputation with lenders and investors. They may be able to introduce you to potential buyers who’re looking to simply acquire equity (e.g. by purchasing a controlling stake and turning your business into a subsidiary), take over completely as in a merger and acquisition, or want to diversify into other markets.
Reaching out to competitors/buyers directly: It is also possible to approach your competitors or buyers directly with an offer. This can either be a strategic move or end disastrously. It’s imperative to work with a team of lawyers and brokers to ensure that whatever marketing you do, you’ve got the necessary paperwork to protect yourself.
And speaking of lawyers…
4. Negotiating the Sale
Once your business enters the market, it’s only a matter of time before you start receiving offers. But how do you weigh these offers? How do you know if a buyer is serious? How can you ascertain if they can truly afford to buy your IT business?
Selling an IT business requires a skilled team of professionals including a business broker, an accountant, and a lawyer. These experts, in this case, your lawyer, will negotiate the terms of the business sale. They’ll also make sure that contracts are drawn up correctly and everything is properly documented.
5. Closing the Sale
You’re almost home when you reach the closing stage. This happens once both parties – buyer and seller – have agreed on the terms of the sale.
Transfer of ownership is triggered with the closing of the sale. Business assets will all need to be handed over in the correct fashion to the new owner. Your team consisting of your broker and lawyer can spearhead this on your behalf.
The Bottom Line
For deals such as these having the right people working with you, guiding you, and giving you insight is beneficial to ensuring that everything goes well.
If you’re ready to sell an IT business or would like to discuss your options with an experienced business broker, contact our Sun Acquisitions team today.
Looking for more insight on selling a business? Check out these links:
- Mitigating Post-Closing Risks Through The Rep and Warranty Insurance
- How to Navigate a Buyer or Seller’s Initial Meeting
- Are You Financially Ready to Sell?
- Buyer Motivation – How to Confirm?
- Sell NOW – The Crystal Ball is Pretty Clear
Disclaimer: Any information provided in this blog is not intended to replace legal, financial, or taxation advice given by qualified professionals.