Buying a Software Business: What Buyers of an Established, Profitable Company Review
Small software companies that sell subscriptions to business customers can be attractive acquisitions. An established product may already have paying customers, a support process, a hosting setup and years of financial history. But a software business is different from a services firm. Its value rests on code, customer contracts, the systems that keep the product running and the few people who understand how it all works. Buyers who want to buy a software business need to confirm that what they are paying for is actually owned, maintained and profitable.
This article is general information for buyers of existing, operating, profitable software and software-as-a-service businesses with recurring revenue. It does not address venture funding, pre-revenue products or financing product development. Intellectual property, licensing, privacy and export questions should be reviewed with qualified counsel. Nothing here is legal, tax or financial advice.
Confirm Code Ownership
The company should own, or have clear rights to, the code behind its product. Buyers review whether employees and contractors who wrote the code signed intellectual property assignments, whether any code was licensed from others and which open-source components are included and under what licenses. See our article on software code ownership.
Understand Hosting and Infrastructure
- Where the product is hosted and whose name the hosting accounts are in
- Monthly hosting and third-party service costs and how they change with usage
- Backup, recovery and monitoring practices
- Domain names, certificates and administrative credentials
- Any integrations with outside platforms the product relies on
Accounts and third-party services should not be assumed to transfer automatically. Buyers should plan how each will be moved or reassigned.
Review Customer Contracts
Buyers review subscription terms, renewal and cancellation provisions, pricing, service level commitments, liability limits and assignment clauses. Larger customers may have negotiated custom terms, data protection commitments or consent rights on a change of ownership.
Evaluate Retention Qualitatively
Subscription revenue is only as durable as the customers who renew. Rather than relying on a single headline figure, buyers frequently review customer tenure, cancellations and the reasons given, revenue by customer over time, refunds and how pricing changes affected retention. Our guide to technology company valuation explains how revenue quality affects price.
Look at Support and Maintenance
Who answers support requests, fixes bugs and keeps the product compatible with the systems it depends on? If the founder is the only developer, the buyer needs a realistic plan for ongoing maintenance. A product that has been neglected may require investment simply to keep current customers.
Assess Security and Data Handling
Software that stores customer data carries privacy and security obligations. Buyers should have qualified professionals review security practices, incident history and contractual commitments. See our article on cybersecurity due diligence.
Confirm Profitability
Financing for an acquisition generally depends on documented profit, not growth potential. Buyers should confirm that revenue covers hosting, support, maintenance, owner compensation at a market rate and the new debt payments. Our technology company due diligence checklist covers the financial review.
Financing an Established Software Business
Because software businesses frequently have few hard assets, lenders focus on documented cash flow, customer contracts, revenue history and the buyer’s ability to run the product. Eligibility depends on the business, the buyer and program rules. See our guide to SBA loans for technology companies.
US Professional Funding helps buyers finance the acquisition of existing, operating, profitable software and technology businesses. Learn more about our technology acquisition financing.
