How to Sell an IT Business
Information technology (IT) businesses are experiencing rapid growth. The COVID-19 pandemic has sharply increased the demand for home-based IT connectivity, cybersecurity, and data management.
Moving forward, many companies may adopt a hybrid model that allows employees to work at home part-time. This long-term approach will increase reliance on IT firms, so that employees can work productively from anywhere. Businesses may allocate more resources to IT and remote work, and spend less money on office space and furnishings.
Increased demand for IT creates a selling opportunity for business owners. Potential buyers may be willing to pay more for an IT company with growing sales and profits. Before you start looking for buyers, consider using an experienced business broker. These experts can help you find a qualified buyer in less time, and secure an attractive price for your business.
Your IT business may install and maintain IT systems, develop software and hardware products, or both.
Providing IT Services
No business can operate without a reliable technology infrastructure, and IT firms that provide great service develop loyal customers. Here are some of the key functions that an IT business may provide:
Support for email and other communication platforms (Slack, Airtable, Zoom)
Cloud computing and other data storage services
Your firm may provide 24-hour live support, and assistance via chat or email. You need experts who can quickly diagnose a problem and keep systems up and running. IT firms must constantly monitor changes in technology, so clients can be kept informed and trained on new software.
Developing and Selling an IT Product
Your firm may develop and sell an IT product (hardware or software) to solve a particular problem in the marketplace. If the product is considered intellectual property (IP), you can work with an attorney to secure and protect a patent.
The code you write creates the IP value. Some IT companies focus on developing IP, or discover an IP need while working with clients.
A broker can take on many of the responsibilities during a sale, including the marketing plan to sell your business.
Positioning Your Business for a Sale
Invest the time to meet with a broker and explain your business. Review the products and services that you provide, and how your company differs from the competition. The goal is to identify the traits that make your business valuable to a buyer. Here are some examples:
You have a loyal group of clients who rely on you to provide IT support year after year. Customers value your services and have accepted your price increases over time. If a buyer can retain these clients, the new owner will have a consistent source of income.
Many companies develop IP, obtain patent protection, but do not have a sales force to properly market the technology. If you can demonstrate that your IP is valuable, a purchaser can market your IP through the buyer’s sales force. Here are some factors a buyer will evaluate:
Does the seller clearly understand the market and the size of the market?
What problem (particularly an urgent problem) does the IP solve for a customer? IP might help a client save time, complete work with more accuracy, or help the buyer make better management decisions.
How long will it take the buyer to earn a return on investment? If IP costs the purchaser $5 million, how many units of software must be sold to recover the dollars invested?
If you sell IP based on a subscription model, you can generate monthly recurring revenue that will attract buyers.
Expertise in a Niche
Competing in a niche helps a smaller company succeed, even if larger firms operate in the same market.
Assume, for example, that your IT business specializes in e-commerce. Your company knows how to resolve problems with online payment systems, and your staff provides expertise in website design.
Niche companies can thrive, because they know their clients and understand customer needs in far more detail. If you have success in a niche, you can build brand awareness and attract more customers.
A broker will use all of this information to document your firm’s value proposition and market your business. By working with a broker, you may uncover valuable traits about your business that you’ve missed.
Finding a Buyer, Due Diligence
Brokers have an extensive network of attorneys, accountants, and investors who buy and sell businesses. Your broker will market the business to their contacts, and verify that a potential buyer has the financial means to buy your firm.
When a buyer is identified, your broker will manage the due diligence process. They know which documents should be provided for the buyer’s review, and the broker will keep the process moving forward. Finally, the broker will negotiate a sale price on your behalf.
Changes in the way we do business have made IT companies highly valuable. If you’re an owner who wants to sell an IT company, find a trusted advisor to help you.
Work With an Expert
Raincatcher’s goal is to help entrepreneurs buy and sell remarkable companies, and the firm has helped thousands of businesses reach that goal. Their experts have experience with IT businesses, and they can uncover the true value of your firm.
Work with Raincatcher today to secure the best possible deal for your IT business.