How to Sell Your Bootstrapped Data Analytics Company in 2021
You started with the dream of building a successful data analytics company, and you have worked hard for it. Now you feel that you want to cash in on all that hard work and move onwards to bigger goals. Or you may have some offers at hand and want to consider whether you should accept any of those offers or not.
Before you do anything else, you have to ensure that you dwell on your reasons to sell your analytics company. Owning a stable and profitable company is incredible, especially when you do not owe any money to investors.
So run the numbers and see whether the business will be much more profitable in a few years so that you can sell it at a higher price then. Or are you afraid that an event like the Covid-19 pandemic might affect the data analytics market, and you may lose everything?
Interestingly, most businesses do not base their reason to sell on finances alone. They might get bored of it or want to diversify into other areas. Or you may want to reduce your involvement instead of increasing revenue and growth. So consider your reasons to sell your business carefully and make the decision for the right reasons.
Once you have decided to sell your bootstrapped data analytics business, you can think about the actual process.
How to Find the Buyer?
There are several ways to attract potential buyers for a data analytics company. You can make your business visible to potential buyers through Twitter, LinkedIn, or other methods via the internet. The advantage of using this method is that you will get a lot of offers from potential buyers.
However, most of these offers will prove to be a complete waste of your time. A lot of these buyers are looking for distressed or under-valued businesses trying to get out at any cost. Most of these people will try to buy your data analytics business for 6x of your monthly profits.
But a bootstrapped data analytics business can be worth almost 30 times your monthly profits in 3 to 4 years. Very few potential investors that contact you would be willing to pay that price.
Therefore we will advise you to contact reputable business brokers who can get in touch with potential buyers dedicated to raising funds and buying profitable businesses such as yours. They can make concerted efforts to schedule calls and meetings with each of these buyers so that you can move forward at a reasonable pace.
That way, you will be able to sort out the viable buyers by receiving verbal offers or a letter of intent. The average time to sell your company can be up to 6 months from the time you put your business on the market.
What Should You Disclose?
You would need to anticipate the types of questions that a potential buyer might ask so that you can prepare with an answer. Think carefully about what you want to disclose regarding your financial information, especially the details of your revenue growth and client database.
You can ask a potential buyer to sign a nondisclosure agreement before sharing any vital information about your business. You can also choose to make a public disclosure about any information that might simplify the process.
Summarise the information available publicly through an overview of your cost and profitability. It is usually enough to help the buyer make an initial assessment of your data analytics company before discussing the price.
How to Discuss the Price of Your Company?
The financial details you choose to disclose are also known as Seller Discretionary Earnings (SDE) or Seller Discretionary Income (SDI). You can add expenses like the owner’s salary that make sense from an IRS perspective but might not apply to potential buyers.
It will allow you to maximize your SDE so that you can discuss the price of your data analytics business accordingly. However, this method does not account for several factors. For example, a rapidly growing analytics company that added 50% of its clients in the last quarter of an SDE can be much more profitable than a flat-lined business with the same SDE.
What happens when a deal takes six months or more to close? Does the SDE get updated each month automatically? Or do you mutually agree to freeze it at one point during the negotiations?
You can take the approach of pitching a project to a client where you charge a certain amount depending on the number of hours it will take. Instead of taking part in multiple discussions related to your business finances, you can quote a certain amount if the deal is closed within the next few months.
How to Conclude the Deal?
You may want to discuss certain other aspects of the future of your data analytics company. For example, you may want to know what the potential buyer plans to do with the business and how they will take your team forward. You should also ensure that the buyer is technically competent and has experience handling a data analytics company.
It might save you from a lot of headaches during the transition of the business. Once you have agreed to all of these factors, the buyer will present you with a letter of intent and proceed with the due diligence. You can mutually agree on the period of exclusivity during the due diligence process.
But you should always have a backup buyer to ensure that you maintain your negotiating position till the end of the deal. Once both the parties have agreed to the asset purchase agreement, the buyer will send a wire transfer of the money to an escrow agent or law firm until you complete the predefined process of handing over the business.
You will have to hand over various controls of your company, such as domains, servers, log in details, client database, and any other assets. Once the buyer is satisfied that the business has been handed over to them, they inform the escrow agent, who releases the money to you.
We hope that this article will help you with the process of selling your bootstrapped data analytics company for what it’s worth.