How to Buy a SaaS Company: A Guide
Need some help with making the right purchase?
Check out this guide on how to buy a SaaS company.
Here’s What We’re Covering:
Why buy a SaaS business?
Where to buy a SaaS company?
Financial due diligence.
Technical due diligence.
Marketing channels.
Research competitors
Company branding
How to buy a SaaS company?
The SaaS business model is gaining traction. In fact, by 2022 SaaS revenue is projected to reach $143.7 billion.
The SaaS model is low-cost, scalable, and robust. One of the major advantages of SaaS companies is that they're cloud-based. Because of this, they have been largely unaffected by the current pandemic.
Are you considering acquiring a SaaS business? Keep reading to find out everything you need to know about how to buy a SaaS company.
Why Buy a SaaS Business?
There are a number of reasons to consider buying a SaaS business. First of all, you're getting your hands on a business that's already making money. The SaaS model is subscription-based, which can be very lucrative in the long term.
SaaS is also a robust business model. Because the software runs in the cloud, you don't have to worry about managing supply chains or the logistics that come with operating physical hardware.
An established SaaS business has already done the hard work of breaking into the market and acquiring paying clients. If you were to build your own SaaS business, it would take a lot of time before the profits began rolling in.
When purchasing a SaaS company, there are different ways to make money. You could buy it cheap and try to flip it. Or, you could use your skills to grow the business, build new revenue channels, and sell it in 3-5 years.
Where to Buy a SaaS Company?
If you've decided to buy a SaaS business, the next decision you need to make is where to buy one?
If you choose to go through a broker, then you need to do some research on different marketplaces. There may be several good-looking business brokers out there, but it's your job to vet them.
Is the brokerage legit? Do they have a proven track record of making successful sales? These are the kinds of questions you need to be asking when vetting different marketplaces.
Check reviews to see whether their customers are satisfied with their services. By following these simple steps, you can narrow down your search to only the very best brokers.
The advantage of using a broker instead of buying privately is that the broker will check the legitimacy of the businesses before putting them on their marketplace. This can save you a lot of time. Just make sure their vetting process is up to scratch.
A good broker will ease your anxiety when working through a deal. That's why many people choose to work through a marketplace instead of buying privately.
However, using a broker doesn't mean you don't need to do your own due diligence.
Financial Due Diligence
One of the most important steps before buying a SaaS business is checking their financial accounts.
Remember, screenshots of monthly revenue and traffic are not enough to discern whether the performance of the business matches its valuation. Once you've found a listing that interests you, request access to their analytics accounts. Now you can objectively assess the data to make sure it all lines up.
Checking revenue is not enough, though. You should also have a look at the company's profit and loss. A SaaS company with high expenses might make you think twice about following through with the purchase.
Technical Due Diligence
The foundation of any SaaS business is the source code. Once you've established an interest in a particular company, you'll want to check out the backend to see how it all runs.
Solid software architecture is very important for scaling a SaaS business. You don't want to buy something that hasn't been built to last. If you don't have the technical ability to assess the code yourself, hire someone who can help you.
Make sure you hire an expert who knows the coding language used by the company. An experienced developer will be able to run through the backend and figure out if there are any weak points in the software.
Marketing Channels
When you're vetting a SaaS business, you should check its marketing and acquisition channels. You need to know what their marketing strategy is and how they acquire new customers.
SaaS businesses usually get traffic from one or more of the following sources:
Organic traffic (SEO)
Social
Referral
Paid advertising (e.g. Google Ads)
You could consider hiring an SEO expert to check their links and find out where the majority of their traffic comes from.
If they get all their traffic through paid advertising, then there might be an opportunity for you to improve their SEO and boost organic traffic. Diversifying traffic sources helps build a more robust business.
This can also help attract new customers and increase revenue. Identifying problems like this that you can easily solve, can make the acquisition even more lucrative.
Research Competitors
No matter what kind of business you get into, you'll always be sharing the market with competitors. SaaS companies are no different.
Before you decide to buy, you should have a thorough understanding of who your competitors are and how they operate. For example, are you buying a business at the top of their niche? Or is there still lots of room for growth?
Check competitors to see how their offering compares with yours. How much do they charge? What's included in their fee? How does their software stack up against yours?
Company Branding
You've checked out the source code and you're happy with the product. Now, what can be done to improve the look and feel of the brand?
How does the company present itself online? Check their website and social media pages. Even if their reach on social media is small, it's not a big deal. This represents another opportunity to scale the business.
Check to see if the company has any trademarks and whether they're included in the sale. Before buying a SaaS company you need to know what's included in the deal.
How to Buy a SaaS Company
Now you know how to buy a SaaS company. SaaS businesses are becoming more and more popular due to their robust, cloud-based infrastructure, low costs, and high revenue potential.
If you're looking to buy a SaaS company you need to do your due diligence. Check their accounts, including P&L, and hire a veteran developer to vet their software. Inspect their marketing channels and identify opportunities to improve on SEO and branding.
Are you ready to buy a SaaS company from an experienced and reputable broker? Find a business for sale now.
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