Preparing to Sell your IT Business
Deciding to sell your IT business is one of the most important decisions you’ll make. And unlocking the value of that business can be life changing. Here are TEN TIPS to guide you toward a sale — including financial, legal, operations, marketing, and estate planning.
The first step in preparing your business for sale is gathering and organizing your financial records. Potential buyers will want your financial statements, including profit and loss statements, balance sheets, and cash flow statements. Buyers are looking for a clear and diversified revenue stream, including recurring revenue and contracted revenue, to ensure the company is financially stable and has long-term growth potential. The company’s cash flow should be carefully managed and monitored, with a focus on optimizing working capital. Also, the company’s financial controls should be well documented and implemented, with a focus on ensuring accuracy and transparency. Hire an accountant, if necessary, and request they look at your records through the lens of a buyer.
Buyers will review your legal documents, including customer and employment contracts, operating agreements, leases, and licenses. Make sure all legal documents are up-to-date and in a logical order. Ensure your business follows all laws and regulations — including tax, employment, and intellectual property laws. Consider hiring a transaction attorney during the preparation stage to review these documents. Much like with your accountant, ask them to look at your records like he/she is representing the buyer.
Ensure your business is running efficiently and effectively. Documenting your processes and systems helps the buyer understand how your business operates and makes the transition smoother. Ensure processes are streamlined and efficient, removing any unnecessary steps. Optimize your technology infrastructure, including hardware, software, and network systems. Ensure all software is up-to-date, and your data is secure. This demonstrates strong leadership and makes your business more valuable.
First impressions are lasting. The first thing many buyers do is conduct an online audit of your marketing, which includes LinkedIn pages, social media, and brand identity. Ensure your firm’s website is up-to-date, easy to navigate, and optimized for search. Include relevant information about your business, such as your history, products or services, and customer testimonials. Boost your marketing efforts to attract new customers and increase your visibility in the market. Develop a marketing plan outlining your marketing strategy and tactics. Consider hiring a marketing firm or consultant to review your strategy, which often results in a healthier pipeline of new business. The best part: if you hold off on selling your business, your sales team will benefit from this marketing boost.
Most buyers want a competent and experienced management team in place. They understand many sellers will eventually move on to their next (ad)venture, so leadership demonstrates stability and sustainability. A skilled management team provides expertise and knowledge of the industry, the market, and the business. This knowledge helps the buyer make informed decisions and ensures the business continues operating successfully post sale. Assembled correctly, an experienced team will increase the value of your business and make it more attractive to buyers.
6. Intellectual Property
As an IT services firm, intellectual property includes a wide range of intangible assets such as software code, databases, algorithms, designs, trade secrets, trademarks, patents, and copyrights. These assets may be developed by the firm’s employees, contractors, or partners, and may be used to differentiate the firm’s services from competitors, or to provide a competitive advantage in the market. Protect your intellectual property by registering patents, trademarks, and copyrights. Intellectual property can add significant value to your business and increase its attractiveness to potential buyers.
7. Keep a Lid on It
Business owners should NOT tell anyone their business is for sale and should maintain confidentiality throughout the sale process. Disclosing this decision to employees, customers, or suppliers will guarantee a negative impact on your business. Employees will feel uncertain about their job security, leading to a loss of productivity or even a mass exodus. Customers will lose confidence in the business, leading to a loss of sales and reputation. Suppliers may become wary and require payment upfront, potentially affecting cash flow. Competitors will use this information to create uncertainty about your business in the market.
8. Don’t Chase the Market
A business owner should not “chase the market” as the reason to sell as it can result in a rushed and unprepared sale that does not maximize value. Owner/Operators may not have taken the necessary steps to properly prepare their business for sale, which can lead to lower valuations and unfavorable terms. Run your business as though you may sell at any time. This way you can sell when the mirror tells you it’s time. Selling a business is a complex process that requires careful planning and execution, and a decision to sell should be based on sound financial and strategic reasons, rather than market trends or hearsay.
9. Estate Planning
Estate planning helps minimize taxes that will be incurred upon the sale of an IT Services business. This includes taxes on capital gains, income, and estate taxes. By working with an estate planning attorney, sellers can develop a plan that takes advantage of tax-saving strategies and minimizes the amount of taxes owed.
Estate planning will also help protect the seller’s assets from creditors and lawsuits. By setting up trusts or other legal structures, sellers can protect their assets from potential legal claims and ensure their wealth is protected.
10. Hire a Business Broker/M&A Advisor
An IT Services business should hire an M&A advisor when selling their business to help owners navigate the complex process of selling their business — from preparing the sale, to finding potential buyers, and negotiating deal terms. Advisors also provide expertise and insights on market conditions, valuations, and deal structures, helping business owners get the best possible price and terms for their business. M&A advisors provide advice and help business owners manage emotions during what can be a stressful and emotional process. Overall, hiring an M&A advisor helps business owners achieve a successful sale and maximize value.
Preparing your IT services business for sale is a complex process that requires planning and execution. By following these TEN TIPS, you will ensure your business is ready for sale, and position your consultancy to earn the maximum value. It’s important to start preparing for the sale well in advance so you have ample time to address any issues and make your business more attractive to buyers.