Selling your business is one of the most important decisions you will ever make. It requires careful planning and execution. We want to help make the process as smooth as it can be for you, your team, and your customers.
Read this guide if you're a business owner considering a sale, now or in the future. We'll take you through three stages and provide helpful tips along the way: getting your business ready, finding the right partner, and closing the deal.
Stage 1: Getting your business ready
Selling is the end goal for many business owners. It should feel like a celebration of many years of hard work and the risks taken to bring an idea to a solution that positively impacts lives and the success of other businesses. When the time is right, whether you plan on staying active in the business or not, the best way to ensure a smooth transition is knowing what to expect and planning accordingly.
Write down your priorities
We encourage you to articulate what's important to you. As you look toward your end goal, keep in mind the impact it will have across your business, your customers, your vendors, and your team. Knowing your priorities will ultimately help guide you in choosing the right partner to carry your business forward.
Know your timeline and goals
A sale can move quickly once the process gets underway, which is all the more reason to start planning now. Even though it's possible for a sale to close in as little as a month, owners often spend several years gathering information and building relationships with prospective buyers leading up to it.
"After long discussions about the future of our business, we concluded that the best long-term decision would be to seek a strategic buyer. Our desire was to find a partner who would ensure continuity for our customers and staff." — Marvin Sauer, former owner, Lightspeed Data Solutions
What potential buyers will want to know about your business
Buyers will want to understand the story of your business: where things started, where the business is today, and what the future holds. If you can, start tracking the information buyers will inevitably ask for, so the story can tell itself. Here are the key areas to focus on:
- People. The most important asset of any software business is its people. Success is often built on healthy employee relationships with customers, vendors, and industry partners. Buyers are excited by businesses with experienced industry leaders and a positive company culture with engaged employees.
- Customers. Companies are only as strong as their loyal customers. Buyers will look at customer tenure, the number of new and lost customers per year, any reliance on key customers, and your ability to grow your solution within customers over time.
- Industry. You know the nuances of your industry, customers, competition, and products better than any prospective buyer. Share your thoughts on the market opportunity, the competitive landscape, and insights on any key trends.
- Financials. Financial statements provide a starting point to understand the historical performance of your business. Buyers will use financials to understand your revenue model, historical growth, and profitability so they can ask thoughtful questions about the future.
When should you bring in a partner? Some reasons to consider: you want to accelerate growth, you want to reduce personal financial risk, you want added guidance and expertise, or you want to move on to your next adventure while ensuring your business is set up for success.
Stage 2: Finding the right partner
During this stage, selling your business becomes less of an abstract concept and more of a strategic step forward. The key is balancing the demands of the sale process while continuing to manage the day-to-day of running a business.
Evaluate potential buyers
There are distinct differences between the types of buyers that could one day take over the reins. Some are looking for a short-term financial outcome, while others want to continue to operate and grow the business indefinitely. Consider these key comparisons when starting your research:
- Strategic buyers aim to add a missing component to their existing company. They may be your competitor, customer, supplier, or in an adjacent market. Most seek synergies by cutting costs or growing revenue. It's key to understand a strategic buyer's plan and how it impacts your team, solutions, company identity, and culture. It's common for strategics to be interested in your solutions or your team, but not often both.
- Private equity firms will often put a considerable amount of debt on the business after the sale, which is why they look for predictable future cash flow to pay off that debt. PE buyers may grow the business or fold it into another company. Generally, they will seek to resell the business within four to five years so they can return capital to their investors.
- Independent sponsors desire to own an established, profitable business but don't possess the funds to acquire it. They typically agree on terms first, then work in the background to raise funds while conducting due diligence. There is inherent risk in their ability to raise the necessary capital late in the process.
- Buy and hold investors take a long-term approach to investing and growing businesses because they are not looking to repackage the business for an eventual sale. Often operating under a decentralized model, they provide capital, access to best practices, benchmarking, and resources for employees and customers to invest and grow the business well into the future.
"Ask questions. Speak with other owners who have sold to that buyer. Before making any big decisions, you'll want to have confidence in who you're working with and how they'll carry on your legacy." — Vaughan Mulcrone, former owner of Next Chapter Technology (NCT)
Look beyond the numbers
The buyer offering the highest valuation can seem like your best option, but there are many other factors to consider when choosing the next home for your business. Look further into how they will carry on your legacy and continue to grow the business, how they will treat your customers and employees, how they will ensure a smooth transition post-sale, how long a typical sale process takes, and their track record for successful transactions.
"Selling your business can be a time-consuming and emotional process. Allocate the right amount of time and energy to successfully meet deadlines and deliverables, but don't let it take over your life." — David Berkal, CEO of Banyan Software
Create a compelling story
Like selling a house, increasing your business's curb appeal can attract more buyers and translate to a higher sale amount. A business worth buying often involves keeping employees and customers happy and hopeful for what's to come. It can also include a healthy and growing customer base, training and retaining high-performing staff, modern tools and processes, strong partnerships, and clean, transparent financials.
Stage 3: Closing the deal
Once you've found a buyer you can confidently trust and easily collaborate with, it's time to put pen to paper. Once all high-level points are agreed to, it usually takes about 12 weeks to complete the sale. This stage can be time-consuming, but it's a necessary means to an end: creating a solid foundation for building future growth.
"It's important to establish a relationship long before the deal closes. Having a partner from day one who understands your business and has a shared view of what's next will help avoid any disruptions to your team and customers." — Arun Srinivasan, Operating Partner at Banyan
A no-surprise experience
Before diving into the details, spend time getting to know your buyer, and vice versa, so you can build a solid foundation for your relationship going forward. Buyers naturally want to hear about future upside and exciting new opportunities, so while it may be counter-intuitive, it's best to share any material risks or concerns early. These will often come up during diligence anyway.
The buyer may want to do deeper discovery before finalizing offer terms, leading to a letter of intent (LOI). The LOI outlines the terms that will end up in the final Purchase Agreement, including your payout and key legal terms. Review it carefully with your team.
Overview of the sale process with Banyan
- 0 to 30 days. Focused on understanding the business in-depth: financials, technology, people, and strategy. Often includes spending time together in person and surfacing any challenges early.
- 30 to 60 days. Completing confirmatory and follow-up items and starting the legal process, including a first draft of the Purchase Agreement.
- 60 to 90 days. Finalizing the Purchase Agreement and Disclosure Schedules, aligning on employee communications, and often hosting a company town hall.
"We found a permanent home in which the company can continue to grow, without shaking up the extraordinary organization that we have built up to now. This will allow employees to continue to develop and excel at their job, knowing that a serious and strong organization is behind them." — Stéphane Gaouette, former owner, DECIMAL
Keys to a smooth sale
- Plan ahead. When it comes to selling your business, it's never too early to start. Take small, strategic steps like organizing your financial information, tracking metrics, creating curb appeal, and keeping your customers and employees excited about the future.
- Choose carefully. Accepting the fastest or highest offer can result in a culture mismatch, unmet expectations, or worse, a broken deal. Be thorough and patient until you find a buyer you're confident will carry on your legacy.
- Look forward. Throughout the process, stay grounded in your end goal: finding the next home for the business you've invested your time, money, and energy in.
Banyan Software is proud to provide a permanent home for enterprise software companies with tenured teams, happy customers, strong market positions, and track records of profitability. While the decision to sell your business is never easy, the process can be. Let's connect for a quick, confidential chat about how we can help, no matter what stage you're at: info@banyansoftware.com.