Selling Your SaaS Business - Upward Exits

Guide to Selling Your SaaS Business

Preparing to Sell Your SaaS Business

When you got into business you may have known that you were building a valuable asset with the idea of selling it one day. However, if you were like most business owners, you just had a light bulb moment that you had to build something that solved a problem or somehow provided value. No matter which of these categories you fall into, here you are today realizing that the once small idea has turned into a sizable SaaS business that someone will pay you millions of dollars for.

Just like selling any other asset, you want your SaaS business should be in the best shape possible in order to attract the highest dollar from investors. For a SaaS business like yours, this means making sure all of your operating procedures are documented, you have automated as many operations as possible, you have very few outstanding tickets, no software bugs and your financial statements are clean and orderly.

Financials (Income Statement, Balance Sheet & Statement of Cash Flows)

To get the best valuation for your software or SaaS business, you should have very clean financial statements where every expense and source of income can be clearly understood by the buyer. There are typically very few expeses with SaaS businesses which is one of the reasons they are so popular with investors. If you have an accountant or CPA do your books, this portion is done for you. 

If you are looking to create an income statement from scratch for your business, make sure that all of the following cash flows are addressed at a minimum.

  • A line item to show each revenue stream. If you have multiple plans that customers can purchase, it is ideal to break these out into their own line item.
  • A line for each expense your business has (hosting, domain, employees, etc.)
  • Here is a more encompassing guide to Income statements to double check your work.

Standard Operating Procedures

Having clear operating procedures is the most important document that can be presented to a buyer. There is more than one way to skin the cat when it comes to operating a SaaS business. Being able to clearly articulate how your business operates and what needs to be done to grow the business is what will make your business appeal to buyers. This means that all procedures done by the owner AND done by all of them employees should be documented. 

Listing Your Business For Sale

Sales Packet Creation

Once we have gathered all of your business documentation and standard operating procedures (SOPs), we’ll make a sales packet for your business. 

The sales packet will contain not just the business financial statements and operation procedures but will include a description of what changes should be made to the business under new ownership, how the business could be expanded, existing link profile if the business utilizes SEO, existing ranking information, a short Q&A with you, and who the business is a fit for.

Sample sales packet cover

Selling an Affiliate Marketing Site

Presenting the Business

Once we have completed the financials and sales packet, we’ll review them with you for final approval. We’ll also create a teaser for the business. This teaser is a one page document that just shares the small amount of information that we want to make public on the business. Typically that is the industry, revenue, net profit, age and asking price.

Once the teaser is complete we’ll send it to our list of buyers to see who is interested in the business. We do not share the complete sales packet at this point. Only once the potential buyer has completed our comprehensive non-disclosure agreement and registered as a buyer on our site will we share sales packets with them. This is to ensure the business’ confidential materials are not shared with the general public.

If the business does not get any suitable offers from our current buyer list, we will put the business on our website, third party listing sites and advertise it to potential buyers to stir up more interest.

Fielding Offers, Negotiating and Closing the Deal

Fielding Offers

There are typically many moving pieces in a business transaction than there are with selling a car, house or any other type of asset. 

Some of the deal structures proposed by buyers are a seller note. This is when buyers may ask the seller to finance a portion of the deal for them. This means the buyer will make fixed payments to the seller over the course of a few years after close.

A buyer may also request a hold back on the purchase price. This is the most common deal covenant that we see and we may advise the seller to accept a small hold back on the transaction. A holdback means a portion of the purchase price is not paid at close. Instead, it is paid after certain criteria are met. (Example. $1M paid at close, $250K paid after 90 days of training is over.)

Many buyers will propose creative deal structures to make sure that all parties interests are aligned for business success on an ongoing basis. If you as a seller are comfortable receiving a royalty or fixed payments over 2 or 3 years for your business, your business becomes much more appealing to buyers and you should be able to ask for a slightly higher purchase price.

Businesses based in the US with at least two years of clean tax returns may be able to get the business pre-approved for an SBA acquisition loan through one of our partners. Businesses that can be acquired through an SBA acquisition loan are more desirable to buyers and therefore typically close quicker, at higher valuations and with a higher level of cash paid at close.

Deal Negotiation

Once a buyer makes a suitable offer for the business, we will present it to you and discuss with you whether to accept, reject or counter. If you chose to counter the offer, we will help you structure a counter offer.

Although most SaaS businesses and tend to be fairly passive, one of the deal points proposed by the buyer will likely be that he/she wants you to stay on for a period of time to oversee the business and train them in the operations. This is fairly standard in the industry and we advise most sellers to accept a reasonable training period as part of the transaction terms. Most sellers are more than happy to assist buyers if the rest of the deal terms make sense. This rarely holds up a transaction.

Close & Migration

Once final deal terms have been agreed upon, it is time to transfer the business to the buyer and the down payment to the seller. Being as though most business acquisitions are structured as asset purchases and not share purchases, the corporate entity you used to run the business can typically stay with the seller, while all other business assets are typically purchased by the new buyer.

We will also oversee that passing of all business trademarks, software, proprietary code, marketing accounts, social media accounts, employee contracts and any other purchased asset as well as migrating the capital to escrow. The funds stay in escrow for a 14 day due diligence period and are then disbursed to the seller, while we keep our success fee.

Most sellers will chose to get legal council before accepting a final offer. This is not included in our fee and business sellers should allocate $2K – $5K for an attorney to advise them on the asset purchase agreement.

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Monthly Profit

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Products

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Tech

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Industry

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Age

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Business Location

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Time Commitment

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Assets

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Business Tax Returns

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PBN

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Fulfillment

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Product reviews

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Total Following

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