How to Sell Your Cybersecurity Firm Right Now
The timing is right for owners in the cybersecurity field to begin exploring exit options.
As an entrepreneur, new business endeavors are generally dictated by trends, the economy and product demand. Every successful business starts by analyzing the market and consumer needs to ensure stability and a potential client base. Considering this, the cyber security industry is expected to be one of the fastest-growing and strongest sectors in America. As technology advances and our access to the web becomes increasingly easier, so does the potential for cybercrime. More consumers and businesses are using technology to manage their day-to-day lives and operations, giving hackers a secret window into our most personal information. To cope with this, the cybersecurity industry is working overtime to provide creative solutions to protect us. After the Target breach, businesses are sparing no expense to block hackers from interfering with critical information. Cybersecurity Ventures predicts that global cybercrime expenses will increase to $6 trillion per year by 2021, and this can include anything from theft of intellectual property to stealing money or someone’s identity. In turn, the cybersecurity industry will grow nearly 10% (and $170 billion) in this time, trying to compete with black hat hackers.
If you own a business in the cybersecurity field, it’s a great time to start considering exit options. The success and security projected for your industry is catching the eyes of buyers looking to invest in a stable, growing business. The first step to strategizing a business exit plan is finding out the value of your company. We have provided a couple commonly used multiples as a guide but remember that only an experienced business broker can tell you the value of your business after looking at all factors.
- 4-5x EBITDA
- 3-4x Cash flow
Hopefully, these numbers have given you an idea of where your business stands in terms of value. Based on your selling timeline, you can either start the sales process now or work on building the value of your firm to ensure a higher sales price. If you chose the latter, we have provided a few tips on increasing the value of a cybersecurity firm below.
One of the contributing factors leading to cybersecurity breaches are untrained employees. Employees often let hackers into a system by making a simple mistake or surfing the web at work. Every second, 12 people become the victim of a cybercrime, which totals to nearly 1 million people every day! Employers recognize this and understand the need for training within their organization as the greatest method of defense. As an intelligent business owner, capitalize on this need by adding training services to your repertoire. Arm your clients with the tools they need to protect themselves and when unfortunate situations arise, they will call on you to help rectify them. You will also boost your cashflow and build a client base by training entire teams. A few different ways you can ensure your clients retain the information and successful arm themselves against hackers is to provide team and individual training, create brief informative videos, post guides and white papers to your website, and leaving clients with literature than they can reference in the future.
As with most businesses, high customer concentrations can be the bane of any good M&A deal. High customer concentrations occur when any one client is responsible for 30% or more of your sales. This creates a risk in the eyes of a buyer because once the owner transitions out of the business, the relationship with the customer can become uncertain. We often see business owners wearing the “client relations” hat, which creates an environment where all customer relationships are with the owner. When the owner is ready to move on, those relationships will need to transition to the new owner, but it doesn’t always work that way. Buyers fear that the relationship was actually with the owner and not so much with the business and when the owner moves on, so will the client. If you think you have an issue with client concentrations, don’t worry! This can be fixed; it might just take some time. To learn more about repairing a customer concentration issue in your cybersecurity business, check out our client concentration game plan.
One of the best ways a seller can ensure success for the new owner is to properly document all processes and procedures within the business. This project should cover all departments and positions so that if an employee is absent from work, the business remains unaffected and will function normally. The first step to implementing this is having all employees create manuals for their positions with step-by-step instructions on their core responsibilities. This task can be tedious but ultimately, buyers will feel safe investing in a business that has its processes documented. The second step is cross-training employees so that if an employee is ever out of work, there is someone who can seamlessly take over that job for the day. Buyers view these steps as risk-management, and lower the level of risk during the transitional phase to ensure a smooth acquisition.
Strong Sales Team
Since cash flow and revenues are a big part of the valuation process for your industry, you’ll want to make sure your sales are at an all-time high and increasing. We’ve said this before but the best time to sell your business is when it is trending upwards and growing. We understand this may feel counterintuitive but think about it; would you buy a business that had been declining for the past couple years? No! You would want a strong business that is forecasted for growth. To achieve this, you’ll need a strong sales team and a developed sales strategy in place. A few ways to accomplish this including weekly sales meetings, prospecting lists, a marketing campaign, and holding salespeople accountable for results. Widening your service range can also assist in building sales because your firm will appeal to a larger prospect base. Not only will a strong sales team increase your numbers, but buyers will feel more confident in your firm knowing there is a strategic plan in place.
Stability of Staff
Most sellers don’t realize what a valuable asset their staff is during the sale of their business. An experienced, tenured team of staff goes a long way with buyers who are looking to invest in a business. No buyer wants to walk into a business that has a problem retaining employees and due to the severe job workforce shortage in the cybersecurity realm, this is a very real issue among firms in your sector. Cybersecurity Ventures predicts there will be nearly 1.9 million cybersecurity jobs open by 2019 and because of this, companies will be highly competitive when it comes to talent acquisition and retention. To help separate your firm from the rest and retain your skilled labor, we recommend offering a nice benefits package with competitive pay. A good culture, bonuses and other perks also help with retaining top talent. Tenured staff will appeal to buyers on many levels, and it’s never too late to start working on an employee retention program.
I hope these tips have helped you in your journey towards planning a successful business exit. After all your years of hard work and dedication, you deserve to cash in on your business and claim the best price possible when you are ready to sell. Our current economy coupled with a growing industry and stable business puts business owners like you in an advantageous position and we believe it is never too early (or too late) to start planning your exit. We have helped several business owners in the cybersecurity field plan for the sale of their business and it all begins with a no-cost, no-obligation valuation. No matter where you are in the small business cycle, every entrepreneur needs to know the value of their company. Take the time to plan for your future and the future of your business today, you will thank yourself at closing.