Are you thinking about selling your subscription "software as a service" (SaaS) business? Most entrepreneurs dream of one day being able to exit their businesses, whether they're moving on to new ventures, taking a break or retiring permanently.
But a SaaS-business sale can be especially challenging.
What many SaaS owners don’t realize is how complex a process their exit will be. From going through a SaaS valuation for your business to walking through the due-diligence rigmarole, they may find the sale quickly turning into a nightmare, especially if they are inexperienced and have no one helping them along the way.
Here are five valuable lessons on selling a multi-million dollar SaaS business.
1. Work with an experienced advisor.
There’s no reason to go through the sale process all on your own, especially if you’ve never done it before. Advisors can help you bypass a lot of confusion and keep things moving in the right direction.
An experienced advisor can answer all of the questions you are likely to have around the sale, ensuring that the process goes smoothly.
Advisors with a good network can also help you find a buyer, assist with negotiations and keep both parties informed and educated throughout the entire process.
Most of all, large acquisitions can be quite complex. Sellers with little to no experience should depend on the expertise of an experienced team for the sale of their business. Even those who have been through the process will still do well to enlist the help of a qualified advisor.
2. Systematize your business.
SaaS businesses often require a high degree of technical knowledge and competence to run, compared to what other business models require. The more difficult your business is to run and manage, the more limited will be your pool of buyers. Investors are typically looking for businesses easy to take over.
So, as you prepare for the sale of your SaaS business, remove yourself from the day-to-day. If your branding and marketing prominently feature you as the owner, you'll want to make sure you aren’t the face and centerpiece of the business anymore.
This also means creating documented step-by-step processes and procedures for your business. The easier your checklists and documents are to follow and understand, the better. Anybody with the right technical experience should be able to follow your documents to the completion of a given task.
Even if you and your role are being incorporated in the acquisition as a merger or partnership, new operational procedures will be needed to support the infrastructure of the business.
3. Get your books in order.
Recurring revenue is one of the main draws to a SaaS business. But just the fact that your business is growing and revenue is increasing doesn’t necessarily mean that buyers are going to pounce on the deal. They'll be interested in the big picture, and will want to know what percentage of the revenue is actually profit. They’ll want to know how much it costs to acquire customers, what your average growth rate is, what your rate of churn is and so on.
The two essential things you'll need to think about as you get your books in order are:
- Maximizing revenue. It is often less expensive to hold on to existing customers and get them to renew than to try to attract new ones to replace cash flow. Use upgrades to your advantage, as they can help you mitigate cancellations. Also, take time to evaluate your revenue model to ensure its suitability and sustainability, and look for ways to maximize revenue.
- Minimizing costs. Customer acquisition can be quite costly, especially if human assistance is required at different stages. In an ideal world, your business would be entirely self-serve. But since that's not possible, use videos, FAQs, tutorials, knowledge bases and other support material to cut down on direct human involvement.
4. Clean up your source code,
A multi-million dollar SaaS business should have clean source code, with annotations and documentation. The code should also be tested and verified. Even if your finances are in order, if your source code is cluttered, messy or lacking in documentation, buyers are going to shy away from the deal.
Clean code is essential for seven-figure SaaS businesses. It is unlikely that the sale will go through unless your source code follows a set of guidelines and standards and is simple, concise and reliable.
As an owner, you might know all the ins and outs of the source code. But that same code can present challenges to the buyer, who might not know how to alter or upgrade the software. Your business is far from future-proof if the code isn’t adequately documented. Make it easy for the seller to take over.
5. Optimize your customer support.
Customer support can literally make or break a SaaS business. If a high volume of complex questions is constantly bombarding your email, help desk or ticketing system, buyers will be less likely to go through with the sale.
Before putting your business up for sale, audit and evaluate your customer service function. What software are you using to manage customer questions? What is your average response time? What is your resolution rate? How satisfied are your customers?
A high volume of simple questions may not necessarily present a problem for buyers, as there are likely ways to cut down on such requests, with content like videos or FAQs. But, in general, the less time it takes to answer the questions, the better. If there are a high number of technical questions that require a lot of time to answer, your customer support isn’t sufficiently optimized yet.
In order to sell your business, you must ready it for the sale. This means removing yourself from the day-to-day and making it easy for the buyer to take over when the deal has finally gone through. If you plan to be part of a partnership type acquisition, then make sure the buyer understands how you and your team operate and how you will mutually benefit from the partnership.
In addition, you should definitely consider using an advisor to walk you through the sale process. Whether the business is big or small, a sale is a complex process with or without an advisor, which is especially true when it comes to multi-million dollar SaaS business.
Keep in mind that buyers typically buy a SaaS business for financial or strategic reasons. Be aware of what they are looking for in an acquisition, and you will be well-positioned to go through the process without too much of a headache.