5 Tips For Buying A SaaS Company
Buying a SaaS company sounds like a great idea. If you consider where the market is headed, it seems like an even great idea. The SaaS business model exists in the cloud, so it doesn’t depend on distribution channels, which makes it a business least impacted by the pandemic.
The SaaS market has demonstrated to be extremely gainful thanks to MRR and appealing options of adaptivity. That means that the way SaaS businesses are valued is different from the rest of the online business models. Statistics show that the SaaS market is growing by 18% every year. Plus, the best part of it is that it doesn’t seem to be decelerating.
However, even if you are sure that you want to buy SaaS business assets, there are several things you should understand before making the purchase. We want you to know your options and we’ll give you a checklist that can be used as a guideline for doing an adequate review on a SaaS company.
Once you go through our article, you’ll know precisely where to find and search for when assessing a SaaS business. Afterward, you can make the purchase knowing you’ve made the right choice.
Have A Goal In Mind
Probably, your end goal is to make money from buying a SaaS business. However, there are plenty of ways you can do that. Are you looking to buy it at a low cost and resell it? Or buy it, develop it, and sell it in a couple of years?
Once you’re buying a business, it’s pretty easy to exaggerate and think: ‘That is a solid business. I think I’ll be able to expand it.’ But what are you really planning to do with it? Are you looking to run it forever?
You must enter the mindset of thinking about where you see yourself 5 or 10 years from now. It’s hard to do that for another person’s company, but you have to if you don’t want to be stuck with owning it infinitely.
Conduct Due Diligence
It might not be the most alluring part of buying or selling SaaS companies, but there’s a lot of due diligence that you definitely need to perform upfront. Due diligence is outlined as an investigation of a potential investment or product to verify all the facts. Those facts can include items like the revision of all financial records, past company performance, company capitalization, management, risks, etc.
Examine The Competitors
You may find a SaaS company with an amazing product. But if 40 other companies are providing that same product or service, you must factor that into your decision process. You need to evaluate the competitor landscape to understand who’s offering what, and how they’re providing it. What traits do they have? What services do customers like and hope to get?
In the course of this process, you can interview customers of the company you’re thinking of buying. Simultaneously, try to get in contact with customers of their competitors also, just to ensure you are fully aware of every small detail about the market and the expectations of your future customers.
Basically, that will give you an understanding of what exactly you’ll be doing.
Request a discount and afterward ask for more. A vast majority of providers start the pricing dialogue with plenty of room to bargain. If you aren’t comfortable with that, find somebody who will be. The price difference between similar providers offering the same type of product will astound you.
Understand When To Quit
Everybody thinks the hardest thing about buying a business is going out and spending all of the money, whatever the sum may be. By all means, money is limited and that’s hard. But what’s in fact far worse is spending great time and plenty of money on an awful deal or a bad business.
If you purchase the wrong SaaS company, it’s better to get out a year later, once you find out that maybe that’s not the right business for you. Not only do you need to think about the funds that you’ve already spent, but you need to think about your capacity for income moving forward as well.
It’s unbelievable. Plenty of entrepreneurs who are earning $60-80k from their business, and they’re great tycoons that could be earning $200,000 if they only had a normal job. Consequently, a lot of individuals don’t consider their potential salary once they think about buying or even selling a SaaS business, but you definitely should.
With all the essential things done, you can now make that phone call to your bank knowing you’ve made a good choice. It should be stated that once you’ve ascertained the legitimacy of the company and the numbers are under control if something is wrong with it that doesn’t make it a poor investment. It can be a highly profitable opportunity for a clever investor.