5 Step Guide to Selling Your IT Business
You’re thinking of selling your IT consulting business, but before you enter into any discussions, you need to keep the following critical points in mind.
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You’ve worked hard to get your IT support business off the ground; it took a lot of effort but you’re at a point where things are going well and it feels like the time is right to sell and move on to something else.
But unless you’ve gone through this before, you likely have many questions. The choices you make now will have a profound impact down the road when you actually go about the transfer of ownership.
So, with that in mind, let’s look at the five crucial things you need to consider as you prepare to sell your consulting business.
- Get Your Books in Order
This may seem obvious but take the time now to make sure you have accurate and up-to-date books. As part of the disclosure process, you will need to have a complete set of books and you can expect that the potential buyer will want the books to be audited and verified by an independent book keeper or accountant.
- Consider Engaging a Professional Services Automation Firm
A Professional Services Automation (PSA) firm that specializes in providing process automation to IT consulting companies can help streamline your operations. A PSA can integrate your services and optimize areas such as our client help desk and customer service, as well as bring together your sales and marketing efforts
For a prospective buyer, having a recognized PSA in place demonstrates your sound business instincts and provides further evidence that the company is well-managed. It is also one less thing the buyer will have to consider, and if comparing your firm to another possible acquisition, a PSA agreement will help distinguish your firm.
Connectwise (www.connectwise.com) and Autotask (www.autotask.com) are two PSA firms that specialize in working with IT consulting companies.
- Set a Realistic Valuation for Your Business
This is always a tricky area; obviously, you want to place the value of your firm as high as you can, but if your value cannot be justified and the buyer does not see potential value, any potential deal will be off the table. This is where the completion of a comprehensive Operational Maturity Level (OML) review can help. The OML scale consists of the following:
- OML 1 = Chaos – little or no process exists
- OML 2 = Emerging – very little standardization; poor performance
- OML 3 = Stable – significant investment has been made in process; risk is minimal and business is generally secure
- OML 4 = Optimizing – technology is starting to support business innovation; critical applications such as a CRM is in place with procedures well-documented
- OML 5 = Innovating – use of technology is a strategic advantage; provisioning of IT services is automated and business is an industry leader
Assessing your business against this scale can help identify areas in which you can direct attention to minimize risk and increase productivity.
- Improve Sales / Revenue Potential
There are a couple of areas to consider when reviewing the future revenue potential for your IT firm. For instance, what ratio of your client list is on a “break-fix” model as opposed to being on a managed service contract?
Break-Fix vs. Managed Services
The Managed Service approach has an inherently greater value to a prospective buyer as there is a known revenue stream that can be quantified. Therefore, if your client list is heavily-weighted to the break-fix side, you should try to move as many clients as possible to a monthly service contract before putting your business up for sale.
To bolster your sales, consider entering into strategic partnerships with your hardware and software providers. This should result in more favorable pricing on resale components allowing you to show a higher profit margin on your resale inventory.
Improve Sales and Marketing
Finally, take a fresh look at your sales and marketing efforts. A company’s value can be increased dramatically by demonstrating a robust sales and marketing pipeline. Maybe this is a good time to improve your website or expand your social media efforts to increase the effectiveness of these important new client acquisition channels. You may also look at new ways to incentivize your sales team to increase conversion rates.
- Get All Your Client Contracts Locked Down
While this may seem obvious, make sure you have contracts in place and signed for all your clients. A handshake deal with Fred whom you’ve been working with for five years is meaningless to a new owner if Fred leaves because you are no longer at the helm.
This also goes for any client contracts that are due for renewal. The more contracts you can get extended now, the better.
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