Software Conferences

Software Store

There are a number of reasons a software developer might consider selling their business.

1. Day to Day to Operational Relief
As a business grows it requires attention, if the business requires constant attention it can be difficult to take a vacation. Selling a business offers operational relief.

2. Growth is Limited
Small developers are limited in funds and expertise to grow their business in new ways. Often a sale will result in a cash infusion and resourceful staff that will create new opportunities for the business.

3. Exit Strategy
Lets face it, all of us have plans to retire at some point. Most developers do not wish to abandon their customers or clients, who have helped them succeed. Selling a business can be an exit strategy.

4. Financial
The almighty dollar is an enticing carrot. Cashing out can be a huge incentive for developers contemplating the sale of their business.

Selling a business is not an easy process, it can be extremely stressful and nerve racking, especially for individuals that have put their heart and soul into the company.

Determining the Price
Business valuations, and in particular software business valuations are typically assigned as a multiple of annual revenues. The number of multiples can vary depending on the type of software and size of the customer base, but usually the sale price is derived from a multiple of annual revenue.

Rarely is the selling price based on sale projections. If the business is expected to grow at a significant rate the sale maybe structured around an earn out, so that if sales projections are met the seller is amply compensated.

Negotiation Tips
1. Everything is Negotiable
Remember that everything is negotiable, even if the other party says that it isn't.

2. Do Your Homework
Do research to determine what the purchaser has paid for similar or comparable businesses. Research what other businesses in your space have sold for.

3. Do Not Settle
The first offer will likely be much lower than the purchaser is willing to pay, do not be afraid to negotiate and ask for more.

4. Negotiate
Consider working earn-outs or bonuses into the deal for performance that exceeds the purchasers expectations. This is an easy way to sweeten the deal and ensure a smooth transition for customers.

5. Non-Competes
It is likely that you will be required to agree to some sort of non-compete contract for a period of time. Be sure that the non-compete does not prohibit you from earning a living in the event that you do not stay on.

Structuring the Deal

1. Stock or Cash
Many large companies will offer stock as part of the purchase price. Think hard about the stocks value and if you had the cash if you would buy the stock. If you accept stock be sure to check any conditions that are placed on the sale of the stock. Often stock deals require that the seller hold the stock for a specified period of time. Always keep in mind stock prices fluctuate. They can go up in value or down.

2. Payment
It is unusual to receive the full payment at the time of the closing, any portion not received at the closing should be placed in escrow.

3. All or Nothing
Many deals are structured based on a number of things. The deals can be a combination of stock and cash, and compensation can also be contingent upon performance. Work to structure a deal that works well for both the buyer and the seller.

Final Tips
There are companies specifically designed to assist with sale negotiations. If you find selling your business a nerve racking experience, consider hiring an experienced professional to handle the negotiations.

Always remember that all contracts should be reviewed by a lawyer that has your interest first and foremost.

Related Articles:
How to License Software