How to Find the Right Software Business For Sale

Understanding how to find the right software business for sale is crucial for anyone interested in exploring the SaaS acquisition marketplace. When you know where to look and what to look for, you have a significantly better chance of making a wise investment decision. 

This article explores the benefits owning a SaaS business, as well as how to go about the acquisition process. We also share several vital elements to consider when evaluating potential deals.

Why Find a Software Business For Sale?

There are several key reasons to acquire a software business, including:

• Scalability
• Work flexibility
• Recurring revenue

Scalability

One of the most exciting aspects of buying a software company is the capacity for rapid and significant scaling. Once the software is built and proven, there is the opportunity to ramp up distribution to a truly global customer base.

Furthermore, it is possible to do so without needing to build and manage inventory and supply chain logistics, as is the case with a physical products business. If you are running an app or software development company, inventory management becomes a whole lot easier.

Work Flexibility

For many entrepreneurs, two significant motivating factors for running their own company are freedom and flexibility. This is especially true when buying and running a software company.

With the right approach, it is very possible to run a software company remotely, working from a location of your choosing. Likewise, it is common for software companies to have a distributed workforce. This allows employees to live and work in different parts of the globe.

In addition to the freedom for the owner, management, and employees, it also opens a much larger pool of talent from which to hire. Lastly, a distributed workforce minimizes office space and supplies costs for the business.

Potential For Recurring Revenue

With the SaaS model, customers subscribe to the software service on a continuing basis, be it monthly, quarterly, or annually. Due to the ongoing nature of the relationship with each customer, it is possible to create significant recurring revenue. This is one of the primary reasons that it’s so appealing to invest in SaaS for many investors.

SaaS companies are also highly scalable. As you add more and more customers to your subscription service, your revenue over time increases dramatically.

Many different factors influence the success or failure of a SaaS company. Simply signing up new customers by itself is not enough to ensure success. The model will be disrupted if the company has poor customer service and quickly loses customers on the back-end. Getting all the elements right is key to a growing and profitable Saas business.

“As you add more and more customers to your subscription service, your revenue over time increases dramatically.”

Buying vs. Starting a Business

Some individuals love the excitement, uncertainty, and creative aspects of starting a business from scratch. 

On the other hand, there are many distinct advantages to buying a software business instead of starting your own. For starters, getting a business off the ground takes an immense amount of hard work, time, dedication, and energy. It also can involve increased risk during the tenuous initial stages.

When you purchase a business, you have the luxury of choosing one that has already proven its software as a viable product, established a customer base, and gained more solidity in its business model. While this does not entirely eliminate risk, it does minimize it.

“Getting a business off the ground takes an immense amount of hard work, time, dedication, and energy.”

Running a business involves some measure of work, regardless of which stage it is at. However, you can skip the most labor-intensive initial phases by purchasing an already established software business. This saves you time, energy, and stress. 

Fortunately, many financing options are available for those interested in purchasing a business. 

What To Consider When Looking For a Software Business For Sale

The benefits of purchasing and running their own software business are clear for the right person. However, not all software companies for sale are created equal. Realizing the full benefits of owning a software or app company requires you to do your homework before making a purchasing decision.

When looking at software companies for sale, there are several key aspects to consider. Below, we’ll explore each of these in more depth.

Growth

Purchasing a business often entails a significant financial commitment. Given this, when looking for a software business for sale, it is prudent to choose a company that will likely provide a healthy return on investment. A higher post-acquisition growth rate will provide a higher ROI for you as the new owner.

By looking at the company’s past and current growth trends, you can learn a lot about what you may be able to expect after you take over ownership. In addition to past and current growth, you will also want to look for clear areas that have room for growth moving forward.

Additionally, if you are thinking of selling the business down the road, driving continued growth is critical.

“When looking for a software business for sale, it is prudent to choose a company that will likely provide a healthy return on investment.”

Risk

All entrepreneurial ventures carry some risk. However, it makes sense to minimize risk as much as possible when selecting a software business to buy. All else being equal, the more risk a company brings to the table, the less valuable it will be, and vice versa.

Generally speaking, a company incurs more risk if any part of its success is built on a single point of failure. If a software company relies on just one channel for customer acquisition, that could cause concern. If something happens to that channel, the entire business could be in jeopardy.

For example, perhaps a company relies solely on social media for its marketing efforts. If social media traffic declines due to an algorithm change, everything from cash flow to net profit will likely suffer as well.

Competition is another potential avenue of risk. A company with intellectual property rights has some protection against risk due to competition.

By looking for companies with less risk and a more solid foundation, you will increase your chances of realizing a return on your investment.

Transferability

Transferability refers to the relative ease or difficulty of transferring a given business to a new owner. For example, does the current owner have a solid team with standard practices that make it easy for a new owner to take over? 

As a buyer, look for companies with a high degree of transferability that can be managed successfully under new ownership.

Documentation

Thorough documentation is important for several reasons. For starters, if a company has clear accounting records, it will be much easier for you to verify the seller’s claims about how the company performs. By reviewing their P&Ls, you can have confidence that the company performs as advertised. 

It’s wise to look for a company with documented standard operating procedures. This will make it easier to run the company. Likewise, it will give you confidence that the seller created and ran a fundamentally solid enterprise. Even the best business ideas don’t mean anything if they aren’t executed responsibly.

Growth, risk, transferability, and documentation are collectively known as the Four Pillars of Value. By paying attention to these fundamental factors, you will be able to select a business that continues to yield a profit long into the future.

“It’s wise to look for a company with documented standard operating procedures.”

Skillset and Knowledge Base

In addition to the Four Pillars of Value, you want to think about what necessary skillsets are required of the owners. For example, does the company need the person at the helm to have specific coding knowledge? Selecting a company that plays to your strengths will make things a lot easier for you once you have taken over ownership.

Depending on your skillset and motivating factors, it may also be advisable to consider what type of software company you would enjoy owning and running.

Budget

Of course, your budget is another essential element in determining your purchasing decisions. Before you set out to find a software company for sale, take the time to develop an idea of what you are willing and able to spend on this venture. Once you do so, you can focus on businesses that fall within your desired budget.

Finding The Right Software Business For Sale

Now that you have an idea of the benefits of buying a software business and know what to look for, we will examine how exactly you go about finding a business for sale.

There are several options available to you. You can choose to navigate the process independently, or you can work with an Advisor to find the right business for you.

Finding a Business By Yourself

Generally, purchasing a company without help can be a worthwhile route if you want to acquire a relatively small business. For many, this includes businesses with a value of $100,000 or less. Once you start looking for larger value businesses, you may want to consider working with an experienced advisor.

If you are going it alone, there are several different marketplace platforms to find businesses for sale. In addition, you may want to consider exploring your own professional networks for any opportunities that may arise.

 

Buying Through a Brokerage Firm

Another option is to work with a brokerage firm to find and purchase a business. This route brings several benefits. For starters, business brokerage firms can utilize their larger networks when identifying potential software companies to purchase. 

In addition, the right firm will help you as you do the important work analyzing each company to determine if it is a good fit. They will also be able to help you determine if the company has an accurate business valuation, as well as a viable business plan. All in all, they will bring their experience and expertise to an otherwise challenging process. This can help you choose a company that has a significant opportunity to realize growth after acquisition.