5 Mistakes to Avoid When Selling Your Software Company
As an Owner Operator, you’ve spent years building and developing your business to where it is now. Your successes and entrepreneurship have made you a prime acquisition target for many large companies, looking to bring your talent and customers into their fold.
After decades at the helm, you’re tempted to make the move so that you can exhale and enjoy the rewards of your hard work. However, before you sign, consider these common mistakes that software companies make when selling their business:
1. Misunderstanding your software company’s value
Don’t wait for prospective buyers to set the price. Determine your market value and enter discussions with that baseline in mind. You may be accustomed to viewing the prospects solely from your organization’s standpoint, but take an industry-wide view when determining value. You will find there are many different factors driving your company’s true value.
2. Not understanding what buyers actually want
Knowing your audience is the first rule of communicating effectively, and it applies here too. Prospective buyers are your audience. Not every buyer is looking for the same things, so you shouldn’t have just one pitch. How will your software company increase the value of the potential buyer’s company? Put yourself in their shoes, and emphasize the direct benefits that your resources will bring to their fundamental business practices.
3. Selling to the wrong buyer
How often have you heard of an acquisition failing? It happens more often than we like to admit. The sale of a software company is about much more than just the sale price. It’s a merger of business lines, customers, and people - there needs to be a strategic fit. Make sure that the buying company offers an environment in which your software company can thrive.
4. Waiting too long to sell
Your company’s value is determined by more than just its financials. It’s determined by the market, and there are many factors that impact the market, including:
- The economy
- The industry’s momentum
- Your nation’s trading practices
- The evolution of your products
Sellers must think strategically about timing. Waiting to sell doesn’t necessarily mean that you will achieve greater value or hit a certain milestone. Your own corporate circumstances may change with time, but so will the environment around you. Understand all of the variables, survey the market, choose your moment and seize your opportunity.
5. Lacking transparency
During the Due Diligence process, the prospect acquirer will want to uncover everything about your business. It’s imperative to be transparent during this process, as failure to resolve or disclose any ‘skeletons in the closet’ could impact the terms of the sale.
Be clear about what you want – your bottom line, the conditions that you are willing to accept, and those you are not. Remember, you are in control, but, you need to be prepared!