Few industries are more stable than the Information Technology industry. Our global society is more reliant on technology than ever before, and most small to medium-sized businesses rely heavily on the many services provided by IT firms to stay up and running. According to IBIS World, more than 450,000 IT businesses, from sole proprietorships to large firms, earned $30.2 billion in profit in 2018. These numbers reflect that it is a great time to sell an IT business. If you are considering a sale now or in the future, consider the following tips to sell your IT business for the best price.
Most business owners are seen as experts in their industries. As an information technology service provider, you are likely a leader in providing technical services to businesses. You’ve no doubt worked with countless owners that have attempted to manage IT on their own, eventually realizing the value in your expertise. It is no different when selling a business. An experienced business broker can take the tasks of valuing your business and finding a perfect buyer off your hands, so you can continue to focus on what you do best—running a successful IT company.
Determining the best valuation for your Information Technology firm can be a daunting task for you to take on alone. M&A professionals are able to draw from a wealth of knowledge and experience to value your unique business. They know what IT buyers are looking for, and they can expertly market your business to fit those needs. They will vet prospective buyers and manage all of the details of the sale, all while you continue to manage your business. Working with a business broker ensures a streamlined, and often shorter, sales process. You’ll have peace of mind, knowing that the sale of your business is in experienced hands.
When preparing to sell your business, take time to organize and clean up your financial documents. Your financial records may make sense to you, but they must make sense to prospective buyers as well. If you aren’t already doing so, consider an easy to understand program, like QuickBooks, to clearly convey financial statements. Personal expenses should not be run through the business as you prepare for sale, as they can cloud the financial picture for your prospective buyers.
You will typically need to show profit and loss statements from the last three years, in addition to tax returns and balance sheets. Prospective buyers may want to know how your IT firm compares to the competition, so have key industry numbers and future projections on hand. In addition, work with your business broker to be able to articulate the value that your business adds to the market. These factors allow prospective buyers to see that your business is well managed, and this can greatly increase the potential value of your business.
After investing so much time, energy, and money into growing your IT business, it is understandable that you may want to remain involved in every aspect of the business, even as it grows. You likely have your hand in solving complicated technical problems, interviewing new staff, building customer relationships, and negotiating contracts. While this has no doubt led to your success in the industry, it may be seen as a red flag to potential buyers. They want to be confident that the business will succeed once you are no longer running the show.
If you haven’t already done so, you may want to consider removing yourself from the vast majority of the company’s tasks. Focus on hiring and training highly qualified staff that is cross-trained in multiple areas. Begin the process of transferring customer relationships from you to account managers, and design a chain of command that allows managers to handle the bulk of the issues that arise day-to-day. Potential buyers will recognize your well-trained staff as an asset and will value your business with that in mind.
In the Information Technology industry, nothing is more important to the bottom line than customer service. Because your customers are businesses themselves, getting timely assistance is critical not only to your success but to theirs as well. Institute efficient standard operating procedures, and educate both your employees and your customers on the process to initiate and respond to service requests. Even your IT support providers should be cross-trained in customer service, as they are often the face of the firm when they are dispatched to clients.
Business owners often depend on word of mouth referrals to find service providers, from insurance agents to accountants and information technology specialists. Providing high-quality service to your customers can be one of the best ways to market your company to other businesses looking for a better IT experience. Client retention is also directly linked to customer service. As your customer base grows, so will the value of your business.
It is never too early to begin preparing your IT business for sale. These tips not only increase the value of your business at the time of purchase, they may also increase your profit in the short run, while it is still under your ownership. Don’t wait until you are ready for retirement to start thinking about the value of your business to prospective buyers. Focus on providing outstanding customer service to your clients, and train highly qualified employees to do the majority of the business tasks. Ensure that your financial documents are organized and easy to understand, and contact an M&A advisor to determine the best value for your business. When the time comes to sell your IT business, you’ll be prepared.