Technology is taking over the world, with the SaaS industry becoming more profitable than ever before, which makes buying an existing business sound like a great idea. However, you need to know what you’re buying into before handing over your money, which means carrying out research and analyzing all aspects of the business. Throughout this article, we serve you six tips for buying a SaaS business.
Numbers can be boring, especially when a SaaS business sale has just taken your fancy. However, you need to dive into the numbers because this will give you a clear indication of a business’s current state. After expressing interest, you should be granted access to their profit and loss statements, which will tell you any additional expenses – there’s no point in investing in businesses with high sales if operating costs surpass them.
If you find operating costs are too expensive, think outside the box and look for ways of reducing them. A negative find doesn’t always point to a terrible company, just inadequate management. When you’re searching through the accounts, take a look at how many recurring clients they have, which will indicate how much steady revenue they have – read this article on the value of recurring revenue, which will tell you how to valuate a SaaS business.
Assess Pricing Structure
After diving into the numbers and learning where the majority of income happens, it’s time to pick apart the pricing structure, which is how clients commit to your services. There are several pricing models in the SaaS world including annual recurring revenue (ARR) and monthly recurring revenue (MRR). Typically, MMR will have the highest income because it means parting with less money right away, which is important in this economy.
Analyze Source Code
The source code is the bedrock of a SaaS service, and it needs to be solid for it to last. If you aren’t tech-savvy, hire someone that can pick it apart. Typically, the owner of a SaaS service owns the rights to the code, as opposed to the developers. However, you should ensure that all aspects of code ownership get transferred to you during the sale. If you’re missing vital code, you may be left with a defective product.
The number of SaaS companies is growing, which means there’s fierce competition out there. Learn about the company’s competitors before you make the sale. Conducting research before your acquisition will help you price your service and create valuable content. A great way to get a lead on your competition is to ask your existing users for feedback and address any negative features.
Lead Generation Channels
The seller’s business generates new leads somehow, and it’s your job to know where before you buy. Traffic is typically built through social media, referrals, direct contact, paid ads, and organic searches. Once you own your new SaaS business, your goal is to diversify the lead generation channels, which means targeting multiple streams. During the early days, you need to play around with different strategies, and eventually, you’ll know where to focus your efforts.
Buying a SaaS business means that you’re taking on an existing brand, which means you need to nurture it. Examine the business as a whole by putting yourself in your customers’ shoes. Doing this will tell you what works and what doesn’t. Further, you should check to make sure any logos and trademarks are factored into the sale.
Buying a SaaS business can be an exciting and lucrative venture, but you need to do your homework and verify its worth. Follow the guide above before handing your money over.