How to Sell a Technology Company: Preparing Buyers and Their Lenders
Many buyers of an IT services firm or small software business finance part of the purchase, so a sale depends not only on finding the right buyer but also on that buyer’s lender being comfortable with the business. Owners who want to sell a technology company can improve their chances of a smooth closing by preparing the financial records, client contracts, code ownership documents and team that buyers and lenders will want to review.
This article is general guidance for owners of existing, operating, profitable technology companies. Every sale is different, and sellers should work with qualified attorneys, accountants, tax advisors and, where appropriate, business brokers or valuation professionals. Nothing here is legal, tax or financial advice.
Start Preparing Early
Time allows an owner to clean up records, put client relationships on paper, reduce dependence on themselves and address issues that could concern a buyer or lender.
Organize the Financial Records
- Several years of tax returns and financial statements that reconcile with each other
- Revenue and gross profit by client and service line
- Recurring billing records reconciled to bank deposits
- Receivables aging and collection history
- Documentation for any personal or one-time expenses you expect a buyer to add back
- A complete schedule of existing debt
Clean, consistent records help buyers and lenders verify earnings. Our guide to technology company valuation explains how those earnings are evaluated.
Document Client Agreements
Buyers will want to see signed agreements, renewal and termination terms and any assignment or change-of-control provisions. Clients served without written agreements may be viewed with more caution, so consider putting those relationships on paper well before a sale. See our article on managed services contracts.
Confirm Ownership of Code and Accounts
If the company built software or tools, gather contributor agreements and document open-source use with the help of IP counsel. Move domains, hosting accounts, repositories and vendor accounts into the company’s name. See our article on software code ownership.
Organize Security and Insurance Records
Buyers will ask about security policies, incident history and insurance coverage. Having these organized, and having any known weaknesses addressed with qualified professionals, can reduce surprises. See our article on cybersecurity due diligence.
Review Vendor and Partner Relationships
Understand what each important vendor, distributor or partner program requires on a change of ownership. Buyers should not be told that pricing or status will transfer unless that has been confirmed.
Reduce Owner Dependence
Buyers place more confidence in a business that can run without its owner. Steps that may help include developing a service manager, introducing other staff to key clients, centralizing credentials and documenting client environments.
Prepare for Due Diligence
Gathering contracts, employee agreements, vendor terms and financial records in advance can reduce delays. Our technology company due diligence checklist shows what buyers typically request.
Understand What Lenders Need From the Seller
The buyer’s lender may ask for information only the seller can provide, such as tax returns, financial statements and client data. Some loan programs also have rules about the seller’s continuing involvement after closing. Responding completely helps keep financing on track, though timing depends on the lender and the transaction.
Consider Deal Structure
Sellers should consider whether they would accept part of the price over time or terms tied to client renewals. A seller note can help a buyer complete financing. See our article on technology company seller financing.
Protect Clients and Staff During the Sale
Confidentiality matters. Premature news of a sale can unsettle engineers and clients. Many sellers share information under confidentiality agreements, announce the sale when closing is near and then personally introduce the new owner.
US Professional Funding helps qualified buyers finance the acquisition of existing, operating technology companies, which can help sellers reach a closing. Learn more about our technology acquisition financing.
