If you have a profitable SaaS (software as a service) business, then you have a hugely desirable asset on your hands.
SaaS businesses can demand some of the highest multiples of any online business model.
This is because there’s a hunger from buyers to acquire a business that has a recurring revenue stream. This doesn’t mean it’s going to be all plain sailing, buyers are savvier than ever so it’s important you know what you’re doing.
Luckily, we’re pretty experienced in this department so we’ll walk you through every stage of the selling process.
When’s the Right Time to Sell Your Saas Business?
This is a question that often comes up, especially by first-time sellers, and there are a few things to consider.
What do you want to get out of a sale?
It’s an obvious question, yet asking yourself this can help you figure out what approach you’ll need to take. Some individuals must sell now in order to pay off their debts or some will use the money to reinvest in other ventures.
Whether they’re paying off their debts or buying a house, the prospect of receiving a lump sum that might be anywhere from 20 to over 60 times their average monthly net profit is exciting.
How to Maximize Your Profit
If you’re not looking to sell your SaaS company immediately, exit planning will assist you in deciding when the proper moment is to sell it as well as how to get the most value out of your exit.
To begin, you must first estimate the worth of your SaaS business. Later on, we’ll go over how this is done but the valuation is likely to be one of the biggest motivators in whether you’re ready to sell.
If you want to find out how much your SaaS business is worth, then check out our SaaS valuation calculator. All you have to do is answer a few quick questions and you’ll have an accurate estimate as to what it’s worth in a few minutes.
For a professional valuation, you can submit your business for sale and our vetting team will be in touch. There are no fees and no obligation to sell.
Once you’ve mastered this, you’ll be able to decide whether or not it’s time to sell. Perhaps you have a sales goal in mind before selling your SaaS business. There are several things you may do to make your exit go more smoothly if they aren’t already implemented. You can also put in place processes to ensure the transaction goes as planned.
To find out what these processes are, it can be helpful to speak to an industry professional—someone that sells businesses every day of the week. You can set up a free call with one of our seller advisors who will give entrepreneurs like yourself exit-planning advice tailored specifically to your business.
This does not imply you must sell your company; rather, it will assist you in determining when is the right time to sell your business. This information will help you choose the most lucrative exit for your company.
We’ll also go over some tips for planning your exit in the Preparing Your Business for Sale section below.
Opting for a Private Sale
It’s a big decision to choose where you want to sell your company, not only which firm you’ll use if any, but also whether you choose a private sale or a brokerage.
A private sale is a transaction in which you perform the lion’s share of the work yourself. This entails either finding potential customers yourself or using a website like Flippa to host your company’s advertisement.
The benefit of this approach is that you won’t have to perform much of the heavy lifting when it comes to vetting, communicating, and negotiating with possible purchasers.
You’ll also have to migrate the company to the new owner, which is frequently neglected when contemplating a purchase.
If you take the private sale approach, privacy isn’t always a possibility. You won’t be able to choose who gets to see your business’ full identity.
The best approach to almost entirely eliminate the danger of tire kickers and copycats is to withhold your SaaS brand and website URL. Only verified buyers should have access to this critical information.
The potential advantage of a private sale is that you won’t pay any extra commission if you facilitate a private sale. This might be something to think about if you’re ready to put in the additional effort.
Working with a Broker
Brokerage services are useful for people who don’t have a buyer contact list or the knowledge to proceed with a transaction themselves.
We’re not afraid to confess that we have a bit of a biased position on this issue as a business broker. To be as transparent as possible, we’ll tell you everything we offer as a full-service M&A broker. We feel that it compares favorably to a private sale and should be the minimum any other broker should provide.
The most common reason to hire a broker is because of their extensive buyer and investor database.
What isn’t as well known is that a SaaS company broker should also complete a variety of services for you. We vet both buyers and sellers who want to utilize our marketplace to ensure that there’s a high level of quality control.
Listings will offer as much information about your company as possible without providing personal information. If a buyer wants to visit your business’ domain, they must become verified, which involves providing identification.
We have a team that works exclusively on every stage of the process, from vetting and sales to migration.
To get your professional valuation, we’ll work with you to compile your P&L (Profit and Loss Statement). You’ll also get one-on-one help from a business advisor throughout the process of communicating with buyers.
This entails responding to the same questions on your behalf and only contacting you when necessary. They’ll also advise you before you enter into any negotiations, and they’ll act as a go-between for the buyer and seller.
Once a deal has been agreed upon, your firm will be handed over to our specialized migrations team for the asset’s transfer to the owner at no additional cost. We are one of the few brokers who can offer this service as part of the commission and not as a separate fee.
We’re also certain that we can sell your company that we offer one of the shortest exclusivity periods in the industry: two months.
We’re informing you of this so you can see how we compare to other brokers when conducting your own research. Don’t be scared to inquire about what a broker is doing for you and what kind of deal flow they have for SaaS in particular.
Preparing Your SaaS Business for Sale
Getting your company ready to sell will save you time in the long run. You could already have completed all of these procedures, in which case we’ll offer you some guidance on what buyers will inquire about.
Accurate Data with Analytics
Buyers will want to see how your SaaS business is generating traffic and receiving customers.
Generally, this will require you to have Google Analytics or Clicky installed, the two analytics platforms that are most widely known.
The sort of data that these sites provide is critical to potential purchasers. It’s standard practice for qualified buyers to have read-only access to these platforms so they can review the numbers.
To better understand your customer base and how your business creates revenue, they’ll be analyzing where visitors are coming from. This will also allow them to evaluate the progress of your company.
Search engine optimization (SEO) is a useful marketing tool for businesses. Because it is inexpensive to operate, it’s an excellent method of lowering the customer acquisition cost for your SaaS.
They’ll examine all of this information in order to identify possibilities for acquiring new customers if they decide to take it over.
Organizing Your Finances
It’s critical to have your finances in order if you want to seal a deal. If a buyer discovers that your calculations are incorrect, they may be scared away from completing a deal.
Buyers will want to be able to see your SaaS business’ finances with ease. The easiest method to present this is through a P&L. Monthly revenue, monthly net profit, and expenses are all included in a P&L.
If you’re not comfortable with creating a spreadsheet or calculating these figures, hiring an accountant is strongly advised. Our vetting experts at Empire Flippers will work with you to develop the P&L.
One other thing that you need to break down is whether the revenue is monthly recurring revenue (MRR) or annual recurring revenue (ARR).
Most buyers tend to prefer MRR as it’s a more predictable form of income. Some well-established B2B SaaS businesses offer discounted annual prices as well as monthly which is common.
Know Your Metrics
The are a number of important factors buyers will take into consideration before deciding to make a purchase. Some of them like profit margin and sale price are pretty obvious.
However, there are some other customer retention metrics that you should be tracking to give acquirers the information they need.
These include:
- Churn rate
- Customer acquisition cost (CAC)
- Lifetime value (LTV)
Presenting these figures over the period of time that your SaaS app or business has been operating makes buyer’s due diligence easier.
Establishing SOPs & Documentation
SOPs are standard operating procedures (SOPs) that detail how to complete certain activities for your SaaS firm.
An SOP is an incredibly useful resource for any task that requires some kind of methodology. It might be simple for you because you do it every day, but what about for someone outside of your business?
Even if you have employees doing this for you, writing out a template for the process will help the buyer hire new people, should the current employees decide not to continue.
Having SOPs in place makes your business a more attractive prospect. Buyers don’t want to spend too much time working out how to run your business; they’re much more interested in dedicating their time to growing it or having people run it for them.
The same can be said for documenting your code. It shows that you’ve taken the time to consider the next owner and will make your business more attractive come the time of sale.
Employee Contracts
Speak with your employees you might have and find out if they’ll be willing to continue on with a new buyer. If they’re not, then the SOPs you created should make training new staff easy enough.
If your business has used freelancers, then including their contact details will be appealing to buyers.
Business Management
With everything in place, your company is now in excellent position to be sold.
While it’s in this condition, you should avoid making any significant changes. Continue to operate things as if you expect to keep it.
It’s possible that your business won’t sell right away simply because it is listed. It might take a few months for a buyer to come in.
The Sales Process
Your company should now be prepared to sell. One of the most crucial things to remember is that the sales process isn’t a time to relax your foot off the gas.
Continue to operate your business as if you expect to keep it in order to avoid a drop in performance. This not only keeps everything as advertised, but it also demonstrates to potential buyers that you care about the company’s success.
To give you a sense of what to anticipate, we’ll go through the typical components of the sales process, beginning with valuation.
Valuation
For everyone, the beginning of the sales process is business valuation. Even if you don’t plan on putting your company up for sale anytime soon, you’re at least considering it.
We recommend that all SaaS store owners find out the value of your business when you’ve built up a year of profitability and at regular points thereafter. It can assist you in obtaining an objective assessment of where your company is presently compared to the market.
Also, understanding how a valuation is made may assist with your company’s growth.
Almost all SaaS businesses will be valued using either seller discretionary earnings (SDE) or earnings before interest, taxes, depreciation, amortization (EBITDA). Which one your business will use depends on the size and structure of your software company. A professional advisor will be able to discuss your options.
For more detailed information check out our guide on how value a SaaS company.
Generally, our valuations follow a pretty simple formula:
[6-12 Months’ Average Net Profit] x Multiple (Typically 20–60+)
Net profit is determined by taking the revenue from a period of 6 to 12 months and subtracting any costs (marketing, hosting, employees, etc.).
We’ll try to take a 12-month average if a company is exhibiting signs of seasonality. We’re more inclined to use a shorter pricing period if a firm is showing indications of recent development or decline.
What makes up the multiple?
The multiple is dependent on a number of factors, including business age, growth rate social media followers, email list subscribers, and traffic diversity.
Using our valuation tool will give you three selling price points.
The typical valuation is where we calculate your company’s value based on existing sales statistics in order to get you the best price while also making it an appealing buy to purchasers.
We also provide an absolute figure if you’re prepared to wait for a major offer, but this does imply that you are pricing yourself too high. On the other hand, lower figures are intended for SaaS business owners who want to sell their business fast.
The evaluation tool gives an accurate value estimate, but consulting with one of our business advisors can assist you in obtaining a more precise valuation that is specific to your SaaS company.
Finding a Buyer
Now that you’ve got a valuation you’re happy with, it’s time to list your business.
The second stage is vetting and marketing working together to get your company listed. All new businesses are published on Monday at 10 a.m. EST and are sent out to our large pool of buyers.
Our business advisors will also reach out to specific parties who might be interested in your company using their contact lists.
If you’re comfortable conducting a seller interview and have a listing over $300K, we’ll do it. It provides you the opportunity to tell your story in your own words and has received excellent reviews from buyers.
With your listing live, our business advisors will be in touch with you regularly to pass on any inquiries that potential consumers may have about your company.
Negotiating a Deal
Our platform will simplify the process of negotiating a transaction for businesses under $300K in cost.
Buyers will be able to submit offers directly to you, allowing you to counter or accept them. If you accept a lower-than-asking price offer, your company will enter a 24-hour circulation. This informs all interested bidders that an offer has been accepted, giving them a chance to offer more.
The circulation period is an important part of the sales process; it helps us get the best possible price for your business.
When it comes to selling your SaaS business for more than $300,000, there are typically many moving elements. It’s typical for interested buyers to arrange a call with you before they go into any buyer-seller meeting. A business advisor will perform a pre-call with you ahead of time to prepare you and answer any questions you may have before entering
Deal structuring will be a consideration for larger-priced items. An earn-out is one example; the buyer would make an upfront payment that is less than the asking price, with further payments made over several months.
Not everyone will have the cash flow or be prepared to make a large investment right away. Accepting offers like this benefits your chances of closing a transaction considerably.
This is a thrilling time for sellers when you’ve accepted an offer you’re happy with; it’s time to move ahead and hand over the SaaS site to the new owner.
Transferring Ownership
Even though a sale has been made in principle, there’s still a lot of work to be done.
If you’re not familiar with migrating online businesses, transferring a SaaS business may be tough. It’s critical to transfer your firm quickly yet effectively in order for a transaction to succeed.
The most critical part of the transfer is the payment processor. Generally, these are transferrable but PayPal can cause particular difficulties. If you operate using PayPal, it’s in your best interest to try and move away from it before you sell.
At Empire Flippers, we have a migrations team that will take care of this process for you at no extra cost.
Due Diligence
A 14-day period of due diligence is typical across the industry, giving purchasers time to confirm that everything has been as advertised.
During this time, purchasers have no legal authority to make any major changes to the company. Some buyers will conclude their purchase early after discovering that everything is operating well because they want to start making changes to their new company.
Any type of agreement will need some sort of post-sale assistance. This is something you can bargain on, but it’s typical for this to include at least 30 days of email support and perhaps a few Skype conversations if the buyer desires them.
Being accessible to a buyer may go a long way towards the deal proceeding. After it does, your cash will be sent through, and you’ll be able to rejoice over the sale of your SaaS business!
How Long Will it Take to Sell My Business?
The average sale time for a SaaS business on our marketplace is 47 days.
This, however, does not tell the whole story when it comes to selling your SaaS business.
In most cases, the time it takes to sell your business is largely dependent on the size of the business. The time it takes to sell a seven-figure business is usually greater than that of sub $200K deals, for example.
Selling Your SaaS Business
Now that you know everything there is to know about selling your company, it’s time to get a valuation for it.
Take a few minutes to fill out our valuation tool.
Once you’ve done that, schedule a call with our exit planning team to discuss an exit plan. This will be the best way to sell your SaaS business for maximum profit
