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How to Buy a SaaS Company
While buying a company is a good idea, you need to do a lot of things before buying a SaaS business. This guide covers how to buy a SaaS company and several steps you should make to ensure a seamless buying process.
Buy a SaaS Company
We’ve put together 6 tips to help you out when buying a SaaS Business for sale.
6 Tips to Successfully Buy a SaaS Business:
Options: buy vs. build
Where to buy a SaaS business
Understand the prices model
Check out the source code
Check acquisition channels
Understand the competition
SaaS continues to show its dominance and is expected to generate an astounding $141 billion in 2022. If you're looking to buy a company, buying a SaaS business would be a remarkable idea.
Living in the cloud means that the SaaS model was not affected by the pandemic, making it one of the most attractive business options.
It has proven to be exemplary lucrative with very enticing options in terms of scalability. It also means that SaaS businesses are valued differently compared to most other businesses.
While buying a company is a good idea, you need to do a lot of things before buying a SaaS business. This guide covers how to buy a SaaS company and several steps you should make to ensure a seamless buying process.
Should You Buy a Company or Build One?
Why buy a company when you can just build one?
One of the most significant benefits is that you'll save time. Building a SaaS company involves building software, which takes a specific skill set that most people may not possess. It would take you a considerable amount of time to build your sass products from the ground up.
When you purchase a SaaS company, you'll not only get the software but a few years’ worths of market data as well. It will give you a sufficient baseline to work and allow you to focus on improving and scaling the business.
Consider Where To Buy the SaaS Business
If this is your first time buying a SaaS business, then you may not know where to start. You face two options, which are to buy from a private seller or a broker. You need to conduct a market evaluation.
The main difference you will face between a private seller and a broker is the vetting process.
A broker will vet numerous businesses that are trying to sell. Vetting the account is one of the most important steps you can take when you want to buy a company, so decide whether you want to jump into the numbers or have a broker do it for you.
Having a broker doesn't necessarily mean that you should overlook your due diligence. It means that they will take the weight of the load from you, and all you have to do is verify what they bring to you.
If you choose to vet yourself, you'll find that most businesses offer screenshots of their account to back up the traffic and revenue claims.
This proof should not be enough, though, and they should grant you viewing permission to their analytics accounts. These accounts will show you whether the valuation matches the business performance.
You should also ask to see the profit and loss statement and any other additional expenses you should know about before you buy a company.
Some people purchase SaaS companies with seemingly good revenue figures but later realize that the high expenses involved lower the net profit. You can catch problems that you may be able to fix. For instance, you could eliminate SEM advertising if you're good at organic SEO.
Understand the Pricing Model
Once you identify where the money is coming from and the strengths and weaknesses of the business, you should understand its pricing model. A SaaS business’s pricing model can be the difference between having no subscribers and millions of them.
There are several SaaS pricing models available. The payment option can be Monthly Recurring Revenue or Annual Recurring Revenue.
Monthly Recurring Revenue is usually the preferred method because it requires low payments up-front to new customers, and it's easier to track business performance.
One of the most significant results for you to conduct a thorough review of the market is to look for opportunities. Besides checking the SaaS company’s legitimacy, market opportunities will play a huge role in your business’s future.
Decide whether you would like to change it from a flat fee system to a tiered system instead. Such a move will make it more appealing to your target market and, in turn, speed up your ROI.
Check how many active subscribers the software has, then look at the churn rate and the customer lifetime value. It will give you a better idea of how the company works. Check how many free users are involved and whether you can offer them low-tier payments to generate revenue.
Check Out the Source Code
The source code is arguably the foundation of a business. A robust source code technically means the product will last a long time. If you don't have the technical capacity to assess the source code, it's prudent for you to hire a professional that does.
The source code is usually the owner's property and doesn't belong to the developers who created it. You must ensure the source code is included in the sale and transferred to you after the sale.
Check Acquisition Channels
There are several ways a SaaS company acquires customers, and they include paid advertising, organic search, social, referral, and direct. SEO and paid advertising are the primary sources of traffic, so scrutinize what the current owner is doing and how you can improve it to increase your business opportunities. Check if a domain is included in the sale to use the website to get traffic.
Understand the Competition
Buying a company means buying a share of the market, so get to know the companies you'll be sharing the market with. Check their marketing, pricing, and what they offer their target market. Scrutinize how they differ from what your software offers and look for an angle that offers you marketability.
Ready To Buy a SaaS Company?
There are so many reasons to buy a SaaS company, and this is the process you should follow to get it done. Do your due diligence to verify everything before you make the final decision to buy a company. You should also know when to walk away from a deal that doesn't seem appealing at all.
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8 Insider Secrets To Buying a SaaS Business
If you're considering buying a SaaS company, you may find that there's a lot of potential in these businesses. You'll discover that you can make a lot with SaaS.
Software as a service (SaaS) is booming
Do you want to hop on the train?
Here are Eight Secrets to Buying a SaaS Business:
Check for product profitability.
Check industry growth level.
Identify potentials.
Understand why the business is being sold.
How good are the competitors?
Can you bring your own team.
Are there any lawsuits or legal disputes?
What is the company’s reputation?
Buying a SaaS company can be a brilliant idea.
If you're considering buying a SaaS company, you may find that there's a lot of potential in these businesses. You'll discover that you can make a lot with SaaS.
Of course, there are a lot of factors that go into buying a SaaS business. You have to consider what it means to buy a business in this industry around software and tech. You have to consider the market and how profitable your niche is.
Before you dive into buying a SaaS business, you need to know the eight insider secrets to buying one of these businesses.
It can help you find a SaaS business that is profitable and worth buying.
1. Is the Product Profitable?
One of the main things you should find out about is if the SaaS business is profitable. You should see if the product they are selling is profitable.
It can give you an idea if you can produce a similar profit if you were to buy the business.
One of the ways to find out if the business is profitable is to look at the businesses' financials. You are assessing the financial risk of buying a business that is either making a profit or not. You are also looking at the profit margins.
The profit margins can be an indicator of how much the business is making after they pay for overhead. Don't be afraid to ask the owner for the financials if you are considering buying their SaaS business.
2. What's the Industry Look Like in the Next Five Years?
Another secret to buying a SaaS business is figuring out what the industry looks like in your specific niche.
There are various kinds of SaaS that range from customer relationship management to accounting software and email software. If you are considering buying a particular SaaS business in, for example, customer relationship management, you need to figure out what that industry looks like in five.
You don't want to buy a business that is behind the curve and has limited potential.
3. What's the Potential?
When it comes to potential, you need to figure out the possibilities for the SaaS business you want to buy.
Even if the business you want to buy has low-profit margins, you may discover that the company has a lot of profit potential. There's potential in marketing and branding the business.
4. Why Is This SaaS Business Getting Sold?
Don't be afraid to ask a business owner why they are selling a business.
It could be that they are in legal trouble; they aren't making a profit or something else that is forcing them to make a sale. You don't want to inherit that kind of trouble.
When you find out why a SaaS business is for sale, it can give you an idea of if you should proceed forward with putting an offer on that business.
5. How Much Better Are Your Competitors?
Another secret to buying a SaaS business is finding out about competitors.
If the competitors of the SaaS business you want to buy are formidably and astronomically better in every area of business, it could make it hard for you to compete with them after you buy the SaaS business.
However, if you discover that the SaaS business you want to buy is staying competitive and considered one of the best, then it's a good business to invest in.
6. Can You Hire Your Own Team?
Sometimes buying a business comes with stipulations.
For example, if a SaaS business owner wants their business and makes sure the employees are kept on, it could be something non-negotiable.
This is something you want to find out before you purchase a SaaS business, especially if you want to bring your own team along.
7. Are There Any Lawsuits?
If there are any pending lawsuits against the SaaS business you want to buy, it could put you in a sticky situation. You could be inheriting those lawsuit issues that make it difficult for you to run your business.
You want to make sure you do your due diligence and find out if there any legal issues the business is facing.
In addition, you also want to make sure the business isn't doing anything unethical. If you buy a business and find out there are some illegal activities being done; it can be done against you.
8. What Is the Company's Reputation?
The final secret about buying a SaaS business is figuring the SaaS company's reputation before buying it.
You want to see what people are saying about the SaaS business on Google and other kinds of reviews. It can give you an idea of if people have a positive or negative perception of the business you are about to buy.
If people have a negative view of the SaaS business, it can be more difficult for you to change that perception after you've bought the business.
Now You Know Everything About Buying a SaaS Business
When it comes to buying a SaaS business, you need to know everything there is to it. These secrets can give you insight into making the best decision. It can guide you when you are finally ready to buy a SaaS business.
It's important to remember, however, that you should be patient when you do buy a business. You shouldn't rush into something because it has a good price tag. You should ask these questions, so you don't end up buying a bad business.
If you are thinking about buying a business, you can visit our website and see how we can help you.
Most related post handpicked for you- read on…
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THE BIZNEXUS ROUNDUP
Quick & dirty interviews, war stories & tips from the trenches of business acquisition, growth & sale. We aim for value, efficiency & fun, so you'll walk away with something useful to take with you along the journey of buying, growing & selling a business.
How to Buy a SaaS Company: A Guide
Want to know how to buy a SaaS company? Need some help with making the right purchase? Click here to read a helpful guide.
Need some help with making the right purchase?
Check out this guide on how to buy a SaaS company.
Here’s What We’re Covering:
Why buy a SaaS business?
Where to buy a SaaS company?
Financial due diligence.
Technical due diligence.
Marketing channels.
Research competitors
Company branding
How to buy a SaaS company?
The SaaS business model is gaining traction. In fact, by 2022 SaaS revenue is projected to reach $143.7 billion.
The SaaS model is low-cost, scalable, and robust. One of the major advantages of SaaS companies is that they're cloud-based. Because of this, they have been largely unaffected by the current pandemic.
Are you considering acquiring a SaaS business? Keep reading to find out everything you need to know about how to buy a SaaS company.
Why Buy a SaaS Business?
There are a number of reasons to consider buying a SaaS business. First of all, you're getting your hands on a business that's already making money. The SaaS model is subscription-based, which can be very lucrative in the long term.
SaaS is also a robust business model. Because the software runs in the cloud, you don't have to worry about managing supply chains or the logistics that come with operating physical hardware.
An established SaaS business has already done the hard work of breaking into the market and acquiring paying clients. If you were to build your own SaaS business, it would take a lot of time before the profits began rolling in.
When purchasing a SaaS company, there are different ways to make money. You could buy it cheap and try to flip it. Or, you could use your skills to grow the business, build new revenue channels, and sell it in 3-5 years.
Where to Buy a SaaS Company?
If you've decided to buy a SaaS business, the next decision you need to make is where to buy one?
If you choose to go through a broker, then you need to do some research on different marketplaces. There may be several good-looking business brokers out there, but it's your job to vet them.
Is the brokerage legit? Do they have a proven track record of making successful sales? These are the kinds of questions you need to be asking when vetting different marketplaces.
Check reviews to see whether their customers are satisfied with their services. By following these simple steps, you can narrow down your search to only the very best brokers.
The advantage of using a broker instead of buying privately is that the broker will check the legitimacy of the businesses before putting them on their marketplace. This can save you a lot of time. Just make sure their vetting process is up to scratch.
A good broker will ease your anxiety when working through a deal. That's why many people choose to work through a marketplace instead of buying privately.
However, using a broker doesn't mean you don't need to do your own due diligence.
Financial Due Diligence
One of the most important steps before buying a SaaS business is checking their financial accounts.
Remember, screenshots of monthly revenue and traffic are not enough to discern whether the performance of the business matches its valuation. Once you've found a listing that interests you, request access to their analytics accounts. Now you can objectively assess the data to make sure it all lines up.
Checking revenue is not enough, though. You should also have a look at the company's profit and loss. A SaaS company with high expenses might make you think twice about following through with the purchase.
Technical Due Diligence
The foundation of any SaaS business is the source code. Once you've established an interest in a particular company, you'll want to check out the backend to see how it all runs.
Solid software architecture is very important for scaling a SaaS business. You don't want to buy something that hasn't been built to last. If you don't have the technical ability to assess the code yourself, hire someone who can help you.
Make sure you hire an expert who knows the coding language used by the company. An experienced developer will be able to run through the backend and figure out if there are any weak points in the software.
Marketing Channels
When you're vetting a SaaS business, you should check its marketing and acquisition channels. You need to know what their marketing strategy is and how they acquire new customers.
SaaS businesses usually get traffic from one or more of the following sources:
Organic traffic (SEO)
Social
Referral
Paid advertising (e.g. Google Ads)
You could consider hiring an SEO expert to check their links and find out where the majority of their traffic comes from.
If they get all their traffic through paid advertising, then there might be an opportunity for you to improve their SEO and boost organic traffic. Diversifying traffic sources helps build a more robust business.
This can also help attract new customers and increase revenue. Identifying problems like this that you can easily solve, can make the acquisition even more lucrative.
Research Competitors
No matter what kind of business you get into, you'll always be sharing the market with competitors. SaaS companies are no different.
Before you decide to buy, you should have a thorough understanding of who your competitors are and how they operate. For example, are you buying a business at the top of their niche? Or is there still lots of room for growth?
Check competitors to see how their offering compares with yours. How much do they charge? What's included in their fee? How does their software stack up against yours?
Company Branding
You've checked out the source code and you're happy with the product. Now, what can be done to improve the look and feel of the brand?
How does the company present itself online? Check their website and social media pages. Even if their reach on social media is small, it's not a big deal. This represents another opportunity to scale the business.
Check to see if the company has any trademarks and whether they're included in the sale. Before buying a SaaS company you need to know what's included in the deal.
How to Buy a SaaS Company
Now you know how to buy a SaaS company. SaaS businesses are becoming more and more popular due to their robust, cloud-based infrastructure, low costs, and high revenue potential.
If you're looking to buy a SaaS company you need to do your due diligence. Check their accounts, including P&L, and hire a veteran developer to vet their software. Inspect their marketing channels and identify opportunities to improve on SEO and branding.
Are you ready to buy a SaaS company from an experienced and reputable broker? Find a business for sale now.
Most related post handpicked for you - read on…
BizNexus -Learn More From Our YouTube Playlist:
BUSINESS ACQUISITION
Have you checked out our podcast?
THE BIZNEXUS ROUNDUP
Quick & dirty interviews, war stories & tips from the trenches of business acquisition, growth & sale. We aim for value, efficiency & fun, so you'll walk away with something useful to take with you along the journey of buying, growing & selling a business.