How to Sell a Software Company

Truforte Business Group - Brokers Blog

You labored arduously to create a powerful, prosperous software firm from the ground up with only an idea and a few excellent individuals. You now want to benefit from your labor of love and advance to more and better things. Or maybe you’ve received some excellent bids for your business and want to ensure you manage the sale of the business expertly.

Selling a software firm may be difficult no matter your circumstances, particularly in the wake of a pandemic, societal instability, and a contentious presidential election season. Need I say more?

Before you think about selling your software company in 2022, have a look at our list of the top 10. Continue reading to find out more about how to approach this procedure and guarantee that you get the results you want.

Know the Value of Your Company

One of the first steps you want to do while preparing to sell your software firm is to hire experts.

The genuine worth of your software company might be easily over- or under-estimated. On the one hand, your impostor syndrome can be telling you that your business isn’t worth what you think it is. On the other hand, you could honestly believe that it is worth more than it really is when you consider all the effort you put into developing it.

You may get the finest advice on how much your company is truly worth from a technology business broker or business intermediary with experience in software business exits. A business intermediary may also assist you in raising the value of your software company before listing and selling it, which will enhance your return on investment and the possibility that everything will work out well for all parties.

Examining your income from the previous 12 months is one of the simplest methods to obtain a rough estimate of the value of your software business. In most circumstances, a software firm will be worth around 1.7 times its sales from the previous year. However, depending on your specific circumstances, that value might range from 1.2 times sales to 5.8 times your trailing 12-month revenue. Every case is somewhat unique.

When to Sell

To extract the most value from a company sale, timing is essential. You could be considering whether it would be sensible to sell your software business now, amid a pandemic and a new presidential administration, or if it would be preferable to hold off until a less turbulent moment.

There is never the ideal moment to sell a firm, but recent studies have indicated that many software businesses have typically sold for 3.34 to 5.25 times their original value.

When selling your software company, timing the market right is almost difficult. In our judgment, 2022 looks just as good as—if not better than—the previous several years if you’re trying to sell.

Establish a prospectus.

Getting your paperwork and financial records in order will be one of the most important tasks in selling your software business, which shouldn’t come as a surprise. Potential purchasers will put a lot of money into buying your business, so they’ll want to know that their investment will pay off. They will thus be scrutinizing your business, so you must be prepared.

Obtain the company’s financial statements going back at least three years. To make sure all regulations have been followed and transactions have been documented, you may also need to have an audit done if you have venture capital backing. Additionally, you’ll need to compile employee onboarding paperwork so prospective purchasers are aware of who is entitled to what in the event that the company is sold.

Organize your personal affairs.

It may seem strange, but having your personal finances in order is a smart idea when you’re preparing to sell your firm. The sale of your software company will undoubtedly have an effect on your financial interests. If your personal financial affairs are in order, it will be simpler for you to manage things in a wise and effective manner.

Consult your CPA and attorney. defend your interests by locking down elements like double-trigger accelerated vesting and ensuring that everything is protected. Have them look at potential severance and change-of-control bonuses as well. Additionally, be sure that the sale of your software company won’t result in any problems with your personal finances or estate planning.

Review Your Sources of Funding

When you’re preparing to sell your business, particularly if you’re a startup, you should also look at your financing sources. Any software investors you may have will need to be aware of your intentions to sell the business. Depending on the details of your investment agreement, they can even have a vote in whether you can sell your business and how it will be done.

If you worked with tiny investors, whether they came from crowdfunding or angel investors, your window for when you can sell the firm will probably be smaller. However, if you worked with conventional venture capitalists, you could have to wait seven to 10 years before you can sell the business.

Make sure you review the conditions of your financing and calculate the influence your investors will have on your selling.

Incorporate Legacy Software

Software development proceeds quickly. You already know that if you want to stay up, you must continually develop fresh product offers. However, just because a new application has been released does not indicate that the older ones can no longer be supported.

If they aren’t addressed right away, legacy software could end up being something of an elephant in the room when prospective buyers are looking at the story.

Address them immediately rather than letting antiquated software cloud the issue and turn off prospective customers. To ensure that potential buyers don’t feel constrained by outdated software products, you might even want to think about offering a separate sale or a complete divestiture of legacy software.

Display Your Technical Skills

The speed of innovation is another feature that sets the software industry apart from other sectors. Don’t be afraid to highlight the projects you’re working on that fall into those “hot” areas, even if they aren’t your primary area of development. Showing off the work you’re doing in these sectors can attract buyer attention. Potential customers will want to know about your company’s experience within trending software sectors like AI/AR. Additionally, it demonstrates your awareness of current market trends and your ability to build a business that can change as quickly as the market requires.

Prepare Your IP Documentation

Intellectual property rights are one of the main problems facing the software industry. Everyone, from customers to workers, is curious about who is the owner of an invention developed on business time and money.

Before selling, you must confirm that you have complete legal rights to any intellectual property your business has. This includes registered trademarks, patents, and copyrights with all relevant governmental organizations and judicial authorities.

Make sure you’re ready to respond to any IP queries any prospective purchasers may have while you’re getting ready to sell your software company. Any software or solutions created while you were at work should, ideally, belong to your organization. These should be transferred to the new owners when you sell the business together with the title.

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