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.
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.
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.
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.