8 Critical Factors To Consider When Selling a SaaS Business

At first this may seem like an easy answer…  “Of course I am ready to sell my business for millions!” If you have developed a product or started a brand, you know that there is a certain attachment to what you have created. Selling your SaaS product is not always that easy.

Developing a SaaS product takes countless hours.It starts with a vision to build a product and all of the possibilities that come with it. Then, you start actually building the tool itself. This can take a ton of time and effort. Troubleshooting and testing the SaaS product brings up issues that need to be solved. After all of this work, it is finally time to launch. However, the software marketplace can be a crowded space. It can be an amazing product but it still needs an audience (If you are looking for creative ways to market your SaaS product, check out this article from our site). Marketing and branding is a whole process in and of itself. 

If you have gone through this process and are considering selling your SaaS product, you know this process really well. One of the greatest feelings is seeing your product and brand that you have worked so hard for succeed. The tension that every entrepreneur faces when they are getting ready to sell a business is deciding between what is more valuable moving forward. To be clear, there is not a right answer here. If you decide to sell a SaaS product, you could be opening up all kinds of new doors.

Selling a SaaS business can: 
• Help your family's financial future
• Give you capital to pursue a new a business
• Free you up to go down a different career path
‍
Keeping your SaaS business can:
• Give you the opportunity to scale it even bigger
• Help you grow as a leader as you build a team
• Build a predictable income stream moving forward. 

The choice is all yours! While scaling and selling a SaaS business is exciting, so is continuing to build the brand that you have invested so many resources into.

Selling a SaaS business can be intimidating… and that is ok! It is a totally new process that involves some of the complicated things that are discussed in this article.  No one is a pro right from the beginning. 

‍The good news is that there are people who have done it before and many of them are willing to walk by your side as you sell your SaaS business. 

‍Mentors can help a ton by providing knowledge from their experience. They can help you process how to accurately value your company and help you see blindspots that you might not be seeing. Their knowledge was earned through experience. They may have made mistakes along the way that they can now help you avoid. 

Mentors can also help with the decision making process. When you are faced with a tough decision, a mentor can help you consider the options and process through the pros and cons of each decision. They are a sounding board that helps bring clarity. 

It can be intimidating to reach out to someone and ask them to help you out in the process. However, there are a lot of people that love the opportunity to give back.

When most of us think about selling a SaaS business, we think that our relationship with our product will be over. That can be great for some people! Maybe you are ready to move onto the next thing. Many people design a product with the goal of selling one day. This is totally valid and can be a great way to build wealth, especially for people who want to build a product and want to try something totally new without running the previous business. However, there are a number of options for what your relationship will be with the new company after they take over. 

This is great for people who still have a passion for the product but do not want to be the sole person in charge of running the business. 

Another huge benefit to you staying on the team is that you probably have a relationship with the customers that use your product. They may know who you are and associate you with the value they receive from the product. By staying on the team, the new owner of the business does not have to lose trust with customers because they do not know him or her. 

Here are 3 options for what the future relationship could look like if you still want to be involved.

‍1. Retained Position:

‍In 2016, according to Business Insider, the UFC sold for over $4 Billion Dollars. That alone is crazy… but that is beside the point. After the sale, Dana White still held a key role in the company. He is currently the president. Like a lot of people who build businesses and products, their relationship to the company is key to the success of the company.It is not just the name recognition that can add value to the company.

It is also the fact that creators know what it took to make the products successful and scale a business. 

‍You know your SaaS product better than anyone and you can add massive value to the new people who run it. 

‍You may not have an ownership stake anymore, but you could receive a salary and still get to see the success of the product you designed. Very few of us ever reach that level of business with our products. However, you have built something that people value and that is important to each person that uses the SaaS product. 

‍2. Work With The Company As A Consultant:

‍This option gives you and the new owner a lot of flexibility. You would not be required to show up daily for 40 hours a week. They would not have to figure out how to pay a full salary. Instead, this would give them an opportunity to work with you on certain projects or issues that come up. 

This can be a great option for you as well. It frees you up to work on other projects and pursue other opportunities, all while still bringing in a stream of income. 

‍3. Remain Part Owner:

‍Another option is to only sell part of your business. This option allows you to still profit from a partial sale while retaining some ownership and influence. 

One of the biggest benefits to this is that it can allow you to redefine your role and let you focus on what you are most passionate about. Say you do not like the daily operations of the business and focusing on all of the administrative details and tasks. You may excel at the marketing side of the business and have already built a relationship with your customers. This would allow you to find someone who is specifically skilled at operations and focus on what you do best. There are all kinds of options here but by sharing some of the responsibilities, it can allow you and your new partner to help the business grow even faster. 

One of the biggest challenges to this is the potential for conflict. Whether it is with friends, family, or a relationship, none of us like conflict. It can turn a business relationship into a difficult situation without productivity. While bringing in someone to help work alongside and doing it as a team can be exciting, it can also bring plenty of challenges. 

The key here is setting up clear roles and expectations from the beginning. It may even be worth putting in the contract how difficult decisions are going to be made, who has the final say on certain decisions, profit sharing, who does staff report to if there are any, and how salaries and hours are decided. Setting clear expectations from the beginning can save a lot of conflict later on.

When a business is being sold, a buyer and a seller have different goals. If you are doing business with someone of integrity, both parties involved want the sale to be fair to both sides. While that is true, both the buyer and the seller want to gain as much value as possible. A seller wants to make as much as possible and a buyer wants to save as much as possible. 

‍Your business records are going to show the potential buyer that your SaaS business is worth what you say it is. 

‍The buyer is going to be able to look at actual data and numbers to show them the potential that they have if they become the new owner. 

The challenge for every business owner is to keep up-to-date and detailed records over the long term. When you launch a SaaS business, you have a lot of different things to juggle. You are right in the middle of product development and making sure all of the features work. You are overseeing the web design aspects for how you are going to sell your product. You are a social media manager. You have also become a marketer as you try to reach an audience with your product. Then, people have questions and you are overseeing communications. You have also become an accountant as you oversee the financial aspects of the business. 

All of these take a lot of time. In the middle of all of this, it is hard to keep records and updated data. The financial data can fall by the wayside. 

One of the best things you can do to ensure future success is keeping accurate and detailed records of all of the financial records and client data. Luckily, there are some great tools out there like QuickBooks and all kinds of Customer Relationship Management (CRM) tools to help you stay organized.

There are all kinds of reasons for the timing of a business sale. Figuring out the most ideal time to sell is a critical factor. It is important to realize that there are multiple reasons people sell businesses and revenue is not always the most important. Sometimes, people start off with one project and realize what they are actually more passionate about. Life and family circumstances play a role in our decisions and sometimes it is best to step away from a certain role. There are all kinds of reasons and one is not always the best. 

However, if your goal is to create the best possible product and maximize the selling price, timing is extremely important. One of the biggest risks is trying to sell too early. The possibility of getting a large amount of money all at once is definitely exciting. There may even be people who have shown interest in buying the SaaS product. Waiting longer can multiply the potential revenue. 

We all get frustrated at times within our businesses. It might not be growing as fast as we want it to and getting clients at first can be really challenging. We end up spending a lot of time on things other than the product itself. Selling our product can seem like it will make all those things go away. However, if we are willing to go through the grind, there can be a much bigger profit on the other side of it. 

Another factor is how new the product is to potential customers. This does not apply as much if a SaaS business is in a crowded space with other similar products. This really applies when you are one of the first in a market. Maybe there are other similar products but yours is a specific plugin for another software and you are the only one. Or maybe you have developed something really unique. There are always customers who are early adopters with technology. They are the ones that are first to try new products and put them into use, the huge majority of people take a little longer before getting accustomed to tech tools. If someone is offering to buy in the early adopter phase and they are offering a lot because they see the future potential, then that can be great! However, it may end up paying a lot more to wait until more people have grown accustomed to using the tool.

When you are thinking about the excitement of scaling and selling a SaaS business… Intellectual property is not usually part of the excitement. However, it is a key part of the process that needs focus. It can also have huge legal ramifications.

Intellectual property can get complicated and there have been major lawsuits over it. Luckily, when you are selling a business, you are looking to give the product over to the seller. 

Intellectual property has to do with patents and proprietary software/technology. Lawsuits can occur when one group says another is using it unlawfully when group one created it. It can be illegal to use another company’s proprietary technology. This can end up being a major benefit to a SaaS business looking to sell. There are cases where people buy businesses solely for a proprietary technology that they cannot use unless they own the rights to it. 

The key here is making sure you have all of the legal components sorted out. It is good to look into patent and proprietary laws and see if it can benefit you to take the right legal measures so others cannot just steal your work. It is also important to get legal advice when you actually go to sell the company to make sure that all of it is sorted out, understood, and in the contract. 

There are all kinds of great resources out there to explain the legal information regarding this. The main focus here is to be aware of any intellectual property components of the sale to make sure you are fairly treated and doing things correctly.

Churn rate is extremely important in a lot of SaaS products. Churn rate refers to how many customers you are keeping vs. losing. A good churn rate means that you are keeping a lot of customers and losing few. If your SaaS product is based off of subscriptions, it means you are keeping a lot of those subscriptions while few people are canceling. 

Churn rate is super important because the person looking to buy your SaaS business can predict how much business they are going to be able to keep going forward. A potential buyer is going to want a low churn rate. This is communicating to them that customers are satisfied with your product and that they are wanting to keep coming back. 

Churn rate is especially important in the SaaS world because a lot of software out there has been moving towards subscription based models. One of the best things you can do as a SaaS entrepreneur is figure out how to gain new customers while maintaining a low churn rate.