Getting the most for your IT business begins with maximizing your IT business valuation. Here, we have narrowed down 3 things that business owners can prioritize to help increase the value of their IT business, even if selling is not on the immediate horizon.
#1. Organize Your Financials
Regardless of your exit timeline, now is the time to organize your financials. Particularly in the IT sector, we see business owners wearing so many hats that they do not have the bandwidth to maintain and analyze financials. Force yourself to set aside time to get your financials in order. A program like QuickBooks can help you organize years of P&Ls and balance sheets fairly quickly.
Once you are organized, you will have what you need to make a few more adjustments that will help your business’s profitability. One example is to stop running personal expenses through the business. Instead, keep personal expenses separate, allow your business to show its true financials, and realize the best price for your business.
Another opportunity is to analyze your customer and supplier relationships. See where your sales are most heavily concentrated. (If you find that one customer is responsible for 50% of your business, you may have a difficult time getting bank financing.) Your financials will also show you how your business is trending. An IT business valuation is typically calculated using the previous 3 years’ financials, with the prior year weighted most. If your business has been trending upward, this is a great time for you to sell.
#2. Build a Team
Just like having organized financials, building a good team is important for any business, regardless of the exit timeline. But particularly when it is time to sell, you need to recognize that any buyer will be scared away if you do not have a team in place. (You will want to work on this task several months to a year prior to selling a business so that everything is running smoothly when you are ready to exit.)
First things first: Do you have a team? If not, get busy assembling one. If so, take a step back and evaluate. Do you have a management team in place? Do you have sufficient support for every department? Can the business function without you? The answers to these questions will help you determine where gaps exist in your team (and who you may need to fill them).
As an IT business owner, you must honestly evaluate your strengths and weaknesses when building your team, and always keep an eye on the future. Are you a strong manager? Or are you more technical? Consider that if an exit is on the horizon, and you are the main technical person relied upon by the majority of the team, it is imperative that you recruit technical employees capable of filling your void. Your skills leave the business when you do, and you must build your team and business in such a way that the new buyer, whether tech-savvy or management-minded, will be able to easily transition into the business. This sort of foresight enhances your company’s desirability, which in turn helps maximize your IT business valuation.
#3. Increase Services & Offerings
Consider adding to your business’s product or service offerings. The possibilities of what an IT services firm can offer are endless, so be intentional when choosing what fits your company best, and remember that recurring revenue is king. IT companies with recurring revenues (like service contracts or managed maintenance agreements) sell at higher multiples and are very attractive to buyers. If you are a software developer or reseller, select software products and software subscriptions can help increase your multiple. Even adding one additional service can increase the multiple and maximize your IT business valuation
Not sure where to expand in our evolving post-COVID landscape? IT businesses and MSPs are wise to increase expertise and offerings in:
- Long term support of remote work
- Support for a diverse array of devices
- Identity authentication management
- Online meeting and collaboration tools
- Cloud computing
#4. Optimize Client Relations
An important part of maximizing your IT business valuation is to see your business through a buyer’s eyes. For example, from a buyer’s standpoint, walking into a business where all revenue sources are familiar with the previous owner and not the buyer is uncomfortable. So consider: are all client and supplier relationships funneled through you, the owner? If so, you need to remedy the situation sooner than later.
Even if you do not anticipate selling in the next few months, it is wise to begin familiarizing members of your staff with key decision makers at client companies. Consider moving some of your team into positions that will allow them to take the lead on key accounts. This fosters a relationship between your clients and your company as a whole, making it much easier for a new owner to transition into your role, thereby making your IT business even more attractive.
If you are considering selling, it is essential that you get an accurate IT business valuation. To get an idea of some of the calculations involved, check out our article on How to Value an IT Business. But remember, only a professional can tell you the real value of your business. We would love to help. Contact us today for a no-cost, confidential valuation.