5 records you must provide when selling an IT business
5 records you must provide when selling an IT business
By Alex Dodgshon

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5 records you must provide when selling an IT business

TAGS:  Business Exit Documentation, Financial Records Keeping, Recurring Revenue

With a history of brokering successful business sales in the IT sector, we know some secrets about the technology marketplace. Buyers of IT and technology businesses are pretty unique in their outlook. With scrupulous attention to detail and highly analytical minds, IT sector buyers are not afraid to request specific records, reports and data. From our experience, if you’re selling an IT business and cannot provide these records, it can seriously devalue your business and increase the likelihood of a deferred earn out being offered.

Achieve full business value in the IT sector

There are some important considerations to take into account to achieve a profitable sale with a data-driven, analytical buyer. So if you want to obtain full business value for your technology business, it’s essential to maintain accurate records.

A CRM and billing system that makes it easy to extract data is an absolute must. You must be able to run detailed reports and provide key information to buyers quickly. It’s important to use the latest software standards to prove how profitable and efficient your business is. It’s practising what you preach!

Follow our handy guidelines on the records and data buyers expect you to provide. You may also be interested in reading: An IT case study, Being profitable does not necessarily make your business valuable

1. Revenue split by client and sector

A company that cannot provide a split of their revenues is less valuable to a prospective buyer. Buyers are looking for reassurance that your business isn’t over-reliant on revenue from a handful of customers or sectors.

Revenue by client reports should depict an even spread of sales across your entire client base. With revenue by sector reporting, buyers are looking for an even spread across a variety of sectors. This way, if your income stream from one sector were to stop abruptly (as happened during the pandemic with forced closure of entertainment venues), the business would still have other revenue streams to fall back on.

2. Revenue frequency

Another common financial record request is revenue frequency reporting. A diligent buyer wants to understand whether revenue is ad-hoc or recurring. Regular repeat business, whether each month, quarter or year is valued more highly.

3. Detailed client profiles

When it comes to client profiling, prospective tech company buyers frequently request specific records on client age and churn. They’re interested in the granular detail of how long each client has been with the business and the average length of a client relationship. Are your customer relationships long-term or do they tend to churn over every couple of years?

Client profile reporting demonstrates how reliable existing customers are as a repeat income stream and suggests how much work the new owner will need to do to generate future business.

4. Microsoft client profile

Naturally, buyers in the IT sector want to understand what software products and applications your business provides and which are the most popular among your client base. Consider preparing client subscription reports to cover which packages they take, how long have they been active, and what upgrades are due and when? This will allow prospective buyers to assess the feasibility of introducing new products.

5. Product Spread

Some buyers may consider potential for expansion in their valuation. In the IT sector there is plenty of scope for diversification into complimentary services, such as VOIP phone systems, VPN and CCTV. If your business provides a variety of products and services, would you be able to extract information on product spread if a buyer requested it?

And finally…

Avoid spending too much time working in your IT business

We’ve said it many times before but think this point is worth repeating.

If you stepped away from your role tomorrow with no warning would the business be able to operate without you?

You could be putting profitability at risk by spending too much of your time working in your business. Replacing a very active, involved founder poses a huge challenge for any new owner. It’s difficult to find someone with the same level of expertise or willingness to wear multiple hats. As a result, your company becomes a less attractive financial investment.

Remind yourself to take a step back, trust your team with day-to-day operations, and focus your efforts on strategy, business performance, and ultra efficient record keeping. That’s what buyers in the IT sector are looking for, and it will help you achieve full business value.

Experience, credibility in the IT and technology marketplace

One of the advantages of choosing a business broker with experience in your sector is our specialist knowledge. Over 17 years, we’ve built a reputation for credibility in our field. It’s likely we already know, or have connections to, people looking to buy an IT business like yours. For more information about selling an IT business or the importance of accurate record-keeping, book a discovery call.

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