An entrepreneur who wants to sell their tech company often thinks: “The buyer will take care of it,” They’ll come take a look for themselves, right? That’s right. But what a buyer like that sees in the first few weeks of the Due diligence plays a major role in determining whether the deal goes through, and for What price? Exit readiness is all about the question: Are you ready for a transaction, well before you Is it ready to enter the market?
Experience shows that entrepreneurs who begin preparations one to two years before the intended sale generally achieve better results in terms of valuation and transaction time. Our practical experience indicates that a company’s proceeds can be 15% to 25% higher following a well-prepared process. Those who fail to prepare run the risk of delays, price pressure, or a transaction that ultimately falls through during the due diligence process.
But “exit readiness” means something very different for a software company than for an IT service provider. Both business models require a different starting point.
Software Company: The Value Lies in the Product
For a software company, such as a SaaS business, a buyer primarily looks at the quality and predictability of revenue. Recurring license or subscription revenue is valued significantly higher than one-time software sales. A company that derives 75% or more of its revenue from fixed-term contracts has a stronger position at the negotiating table.
Other factors buyers critically evaluate:
- AI Strategy: Does the company have a strong, defensible position against Agentic AI (moat strategy), and how is it leveraging the power of AI?
- Technical debt: Is the codebase modern, well-documented, and transferable without the original founders or lead developers?
- Unit economics: What are the key metrics for churn, customer acquisition costs (CAC), customer lifetime value (CLTV), and net revenue retention (NRR)?
- Customer concentration: Are there any customers that account for more than 20% of revenue? That’s a significant risk for a buyer.
- Intellectual Property (IP): Are all copyrights, licenses, and development contracts legally watertight?
- Scalability: Can the platform grow effortlessly without personnel costs increasing proportionally?
SaaS businesses are often valued based on a multiple of their ARR (Annual Recurring Revenue). That multiple—typically between 3x and 8x ARR for mid-sized businesses—depends heavily on the quality of the factors mentioned above and the timing of the process.
Service-oriented tech company: the value lies in people and processes
For an IT service provider—such as an implementation partner, a software development company, a consulting firm, or a Managed Service Provider (MSP)—the situation is fundamentally different.
When evaluating these types of businesses, buyers pay close attention to:
- Dependence on the owner: Are customer relationships tied to the owner-manager personally, or are they embedded in the business?
- Knowledge transfer: Are the key processes documented, and are employees able to operate independently?
- Employee stability: High turnover or key employees without contractual retention agreements pose a risk to buyers.
- Pipeline and order book: What is the weighted pipeline, and how much revenue has already been contracted for the coming year?
- Revenue quality: Is there a track record of recurring business, or is revenue entirely project-based and unpredictable?
Mid-sized service businesses in the technology sector are typically valued based on an EBITDA multiple, which often ranges between 5x and 10x. Strong performance regarding the aforementioned risk factors can significantly increase that valuation, as it directly reduces the risk for the buyer.
Exit readiness isn’t a one-time project, but an ongoing process of strategic business management leading up to a transaction. Those who start early optimize their company’s value, sell faster, and go through the process with significantly less stress.
