Everything looks rosy and you’re ready to sell. This is the moment you’ve worked so hard for, and all the sacrifice is about to pay off. One or more potential buyers is knocking at your door, and you’re excited about what’s about to unfold.

Here are 6 common mistakes that people make when selling their software businesses.

Messing up the numbers

If you’re hazy on the details, you risk the buyer leading the discussion on market value, instead of you. Nobody knows your business as thoroughly as you do. Get clear on your baseline so you’re in a strong position to negotiate. Take into account your business’s financial, future and strategic worth. Don’t underestimate the power of your position within your industry. What is special about your business? It’s these things that increase your worth.

Not knowing what the buyer wants

Spend time talking with the buyer about what they’re looking for. Be curious about what they’ve accomplished and why they’re keen to invest in your business. Make connections between what you offer and how it may complement their existing structure. Get into their shoes and think strategically. What’s so attractive about your business? Why choose your company over a rival one?

Selling to the wrong person

This is similar to a marriage. You’re each coming into this arrangement with your own purpose and aspirations. You want the match to work on every level that counts, particularly when there are other people involved, like your employees and your customers. Take the time to properly understand the way your potential buyer works. Find out their plans for your company and assess whether they’re the best match. This is about more than sales price. It’s about your legacy. It pays to be cautious.

Taking too long to sell

When you’re riding wave after wave of success, it can feel like you’re living a business fairytale. You can forget that fortunes rise and fall and, if you’re not paying enough attention to the market, you can misread your timing. Your worth as a company depends on your financials, sure, but it’s also influenced by things like the state of the economy and industry, consumer trade habits and the production of goods.

Selling at the right time is about seizing opportunities. It’s about reading external circumstances and being alert to changing trends. Clinging on for too long can be detrimental in the long run, just selling too quickly can lead to regret. The right timing is about developing a clear strategy and honing your instinct.

Taking the first bid that comes along

Good early bids can seem quite tantalising. A bird in the hand, after all… But if there’s early interest, that can be a good sign of market competition, and it can be worth holding off a little longer. Competition from buyers gives you choice. Match the buyer with the ethos of your company, drive up your sales price, or both. Hasty sales can lead to seller’s remorse, and after all the effort you’ve taken to create the business you’ve got, it’s worth taking your time over this final hurdle.

Lack of clarity

Serious and experienced  prospective buyers will review the business thoroughly as you get closer to a deal. It is reasonable to require due diligence. Be transparent about what they’re going to find. It’s normal to have encountered difficulties along the way of funding and growing your business. It’s about demonstrating how you overcame them. Last-minute panic over hidden problems can spell disaster for the deal. Ensure your financials are trustworthy. Be clear on who owns what intellectual property. Have everything in place legally.

It’s an exciting point that you’ve reached. Keep your feet on the ground. Be clear on your own expectations and know where you’re willing to compromise and where you won’t. You’re in control and the better prepared you are, the better the outcome for you, for your business and people, and for the new owners.

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When it’s time to move on, you can feel excited about the next stage. You might be retiring, taking up an exciting career shift or starting another business from scratch. The urge to move on quickly can pull your focus away from important details. And these can lead to mistakes. Here are 7 things to look out for when you’re selling a software business.

Most prospective purchasers take longer than you expect

Buyers need to do their due diligence. Their initial excitement may morph into a thorough, process of dotting the i’s and crossing the t’s — and so it should. Ideally, they’ll want to discuss your activities, organisation, due diligence and business planning. This is important, but prioritise those buyers who can expedite due diligence, and who are focused on the present and the future, rather than an over-interrogation of the past.

Selling a business is a lot of work

This is a dance between you and the buyer, and it’s a lot of complicated steps for both of you. You need to schedule plenty of time to work on the sale of your business, and make sure you’re entrusting experts to advise you.

If you’re finding it exhausting, that’s because emotions are involved. This is a big change. You’ve toiled for years to reach this point. You’re bound to have mixed feelings.

Selling a business is time-consuming

You’ll need to adjust your schedule and clear enough time to focus on this properly. It’s more than just the negotiations. It’s the due diligence process, financial plans and processes and the transaction itself. Factor these activities on top of the need to continue business as usual. It’s common to need extra help or resources to juggle the extra work you’ll be taking on.

The workplace will be restless

Rumours travel fast. It’s not uncommon for employees to know a change is in the works long before it’s announced. They will naturally fear change. They might be concerned about continuity of employment or product direction. You want to manage your internal communications well, to avoid any damage to your reputation or employee panic.

The show must go on

Regardless of what’s in the works, it must be business as usual. There are extra eyes on your success throughout the whole process of negotiation. You can’t afford a dip in sales just as people are so interested in your financials. If you’re concerned about letting things fall through the cracks, get help.

Feeling uncertain? That’s normal

Every important step we take in life feels bittersweet. Endings and beginning are full of nostalgia and hope. It’s normal to second-guess what you’re doing. It’s okay to question whether it’s the right time, or this is the right buyer or the right place. At the end of the day, you built this business to realise value for yourself and provide employment to a team, and this is your moment. When you complete the transaction, take a moment to acknowledge the great work you’ve done getting this far.

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You don’t have to use a broker to sell your business. Every business is unique, with its own needs and structures. There are some strategies that can help you sell on your own.

Get clear on what you want

People sell businesses for all sorts of motivations. You might be keen on top dollar over all else, or perhaps it’s more important to you to sell to like-minded individuals who share your vision. Perhaps you’re looking to scale your business or take it in a fresh direction and you’re open to innovative ideas. Whatever your motivation for this move, develop a clear set of guidelines to help you make decisions.

Build your network

It’s not what you know, it’s who, right? The more people you connect with in your industry, the more potential buyers you’re going to meet. Search out companies who buy companies like yours. Talk to people about their experiences. Keep an open mind to different options, and do deep research and due diligence.

Create a confidential Information Memorandum

This is a document you can use to inform buyers about your business. It talks about the solutions you offer, the market you’re in, your competitors, customers, employees and financials. You’ll include historical information and future projections, so buyers find it easy to make a decision.

Closing the deal

Selling a company involves a lot of back and forth negotiations. You’ll discuss the details of intellectual property, binding arrangements and the transaction structure, amongst other things. This is the time to enlist a legal expert with M&A experience. You can’t leave this part to chance.

Give yourself sufficient time to find the best buyer for your company and get the process right. If something seems too easy, it probably is, so always back up your work with advice from experts. Selling your company can be an emotional decision. Take some deep breaths and ensure you’re making wise choices that preserve your legacy and protect your people.

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Should you consider a Management Buyout from within your company? Or go with external Private Equity, Strategic buyers or a Founder Investor? There are pros and cons with each approach, and the more time you allow to consider your options, the better placed you’ll be to make a decision that’s right for your company.

Teoh Capital

Teoh Capital is a private, family-owned investment firm. We acquire and hold software and technology businesses. We won’t sell your company to a rival. We take care of your employees, your brands, your products and services and your customers.

When we buy a company, we keep disruption to a minimum. Our focus is on our companies retaining business autonomy while we inject the capital they need for growth. Our experienced, global network of top talent is available to offer expert advice during all the phases ahead.

How are we different?

Our flexible capital enables founders to maximise proceeds via a two-stage exit, while retaining operational autonomy and benefiting from ongoing, direct access to our founder-investor, David Teoh. In practice, this means we offer ‘capital out’ options for founders to immediately realise the value of what they have built, but we also support them to retain the upside value from the growth capital that we invest to accelerate the growth and value of the business.

While private equity can also offer a two-stage exit to founders and investors (where this is an objective), Teoh Capital’s difference is to invest without a fixed time horizon. Due to fund structures and management fees, private equity and venture capital funds have a limited time horizon that may not align with the growth lifecycle of a company. Unlike those investors, we are not distracted by exit plans a year or two after a transaction.

Similar to venture capital investors, we can invest growth equity to accelerate growth and increase the value of the business and its impact on industries, however, we unlike venture capital, we provide founders ‘capital out’ so that they can de-risk upfront.

Finally, one of our key points of difference is the continuous and direct access that our investees get to our founder-investor, David Teoh and our investment team. We have unparalleled pedigree in founding, operating and growing software and technology businesses and can draw from decades of experience.

Comparison of Teoh Capital to other sources of capital

Teoh Capital Private Equity Venture Capital Trade / Corporate Buyer
Capital out – vendors can realise value
Capital in – growth equity into companies
Vendors maximise proceeds via 2-stage exit while de-risking today
Company management retain operational continuity
Material, dedicated operational input – not just ‘support’
Direct, local access to founder-investor
Streamlined, single-layer and agile investment decision making

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Fundraising is often daunting for business owners. Raising capital can allow the company to flourish, but finding the right investment partner can be time-consuming and difficult. Asking for money might be outside your comfort zone. Not asking for it can keep you small.

Choosing the right investment partner comes with risk. Get it wrong, and your business can run into trouble or even fail. You want opportunities for growth and sustainability, while keeping autonomy over your product development and direction.

The process of securing private equity can be fraught, because it’s frequently transactional and data-driven. It often provides little benefit to the workers and executives who founded these companies. It can disregard the needs of consumers.

But with the right private investor, the story can be very different.

The benefits of partnering with tier 1 private investors

  • Business sales can be increased and organisations strengthened
  • Enhanced value with proven growth strategies
  • New product development ideas
  • Attraction and retention of top talent
  • Setting up to scale in existing and new markets, including offshore

Teoh Capital brings decades of experience to our family of software and technology companies. We understand the market and appreciate the legacy of a company and the vision of its founders. Our capital allows for sustained growth and our network of talent opens opportunities that can’t be reached by a business alone.

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Developing an exit plan

Ideally, you’ll sell your business at its peak. Too often, business owners don’t look far enough ahead. They don’t read the market effectively and panic-sell once their business is tanking.

You want to maximise returns. Prepare for your exit properly and several years ahead if you can, bearing in mind things might change if the technological landscape shifts unexpectedly or you lose a few key clients or competition intensifies. Preparing an exit plan is about your business legacy, but it’s also about taking care of the employees who’ve worked hard with you on your shared purpose.

To plan well for your exit:

  • Give yourself enough time. The process of finding buyers might take longer than you think.
  • Keep your foot on the accelerator until you’re over the finish line. Too often business owners mentally ‘leave the building’ while they’re still meant to be operating the company. You’ll be able to downshift soon enough. For now — focus on developing and delivering great products and services.
  • Keep developing your people. Incoming owners want smart teams who deliver results. Your career might be taking a different step but your staff likely intend to stick with the business, so it’s important to stand by them until the very end.

What sort of exit is right for you?

To exit, the basic options are to sell to a management team member / successor, or to partner with an external investor (be it private equity, venture capital or a founder investor). Sometimes, senior managers within the business take over operations. It can be a great way of ensuring continuity and maintaining existing relationships. There can be risks, though, including financial risk if the buyout is in instalments. You might find offers from within the company are lower than external ones. The MBO process tends to be more cumbersome and often takes longer than a process with an external buyer.

The more time you give yourself to muse over your options and come up with solid future plans, the better the deal you’re likely to strike. This moment has been coming since you first had the idea to start a business. You want to do all you can to make the most of it, and honour the years of work you’ve invested bringing your business to where it is now.

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