Where you list your business tells acquirers a lot about your company. 

It’s our very first impression of the viability, profitability, and durability of your company.

In today’s issue, I’m going to focus on the signals buyers receive when a seller lists their business on a particular marketplace or with certain online brokers. 

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Professional buyers, above a half a million dollars, will read into where you list your business and consciously or not, it affects your sale price and your sale process.

Listing on the wrong marketplace or broker can significantly hurt your ability to sell for top dollar and easy terms.

Most SaaS founders don’t spend a lot of time learning how to sell a businesses. 

Which is completely understandable. As an operator myself, I never thought of it (until I started acquiring them myself).

So when that day comes, most owners just do a little research, look at the listing fees and figure “This broker says he can get me this price, for this fee, let’s list here…”. 

Unfortunately, jumping too quickly at the most convenient listing service can be the first step in the wrong direction. 

As a founder, when you want to sell, you’re competing against all other SaaS companies in the world for the same limited business buyer dollars.

Those buyers are looking for the best businesses their money and talents can acquire. And each of them looks to different marketplaces or brokers to find those companies. 

Fortunately, there’s not a ton of variables that go into where to list your company, so this doesn’t need to be a long, drawn out essay.

Here’s what I’m going to cover about this topic: 

• Marketplaces vs. Brokers 

• Advantages of One vs. the Other

• Seller Prep and Business Prep

• Buyer Vetting

• Signaling Professionalism

• Brokers…on Marketplaces?

• My Hope with Businesses for Sale

Marketplaces vs. Brokers

At the highest level, when a first time seller lists on a marketplace (Flippa, Acquire.com, etc…), you're telling a buyer that you have likely not been professionally coached on the sale process. 

Listing on a marketplace signals to buyers that they will need to handhold you through the process, especially if it's your first business sale. 

Any seller that has a business that might be worth more than a half million dollars listed on a marketplace is putting themselves at a significant disadvantage. They're going against professional acquirers that have a lot of experience. 

It’s the same reason amateurs do not box professionals, it’s a sure way to end their boxing career.

High value businesses listed on marketplaces - without any prior sales experience - are potentially looking at a worse deal with worse terms than if they had gone with a broker.

Advantages of Brokers over Marketplaces

When you list with a broker, that broker is going to review your business to see if it’s ready to sell and if they’re interested in selling it for you.

The broker is going to do due diligence on the business, just like a buyer will.  They review and validate who you are as a seller, whether your revenues appear legitimate, whether your expenses appear reasonable for your business type.

They will coach you on add-backs (to increase the valuation of your business) that you can either immediately take or plan out to fix over the next 6 months.  

Heck, they may even turn you away and say, “come back in six months after you have fixed one or two things” to increase your valuation even significantly higher.

Seller Preparation and Business Prep

The next thing a broker will do is create a prospectus or confidential information memorandum (CIM) for your company. 

They give these documents only to qualified buyers, not just anybody that shows interest. 

The CIM/Prospectus allows those buyers to make a quick decision whether the business is a good fit for them or not.

Which leads me to buyer vetting…

Buyer Vetting

If you're looking to sell a business in the seven to eight figure range you need to be dealing with professional buyers.

Working with a Broker screens out unqualified Buyers. 

Anyone that's ever listed on a marketplace knows exactly why this is important.

Brokers are only going to let qualified buyers with verified funds bother you with questions, thereby saving you a lot of time in a heartache with tire kickers that are out there wasting your time.

Selling through a marketplace leaves many sellers at the end of an LOI phase finding out the “buyer” didn’t have the funds necessary to close on the business. 

Brokers help eliminate this (and other) buyer risks.

Where do Sub-Par Businesses List?

There’s a marketplace for online/offline businesses called BizBuySell.com. That’s where most of the worst businesses for sale end up.

Serious buyers don’t linger on BizBuySell.com listings very long.

Why? 

That's not usually where really good businesses go.

Now…that doesn't mean putting your business for sale in a marketplace isn't going to work, buyers like myself are there looking. I have acquired businesses off Acquire.com and Flippa.

But, listing with a reputable broker signals to buyers that an actual business professional has already determined that your business is worth representing.

Brokers typically refuse about 80-90% of the businesses that try to list with them.

Most of those rejected businesses end up on marketplaces, which is another reason why putting something on a marketplace is a potential signal to a buyer that brokers really aren’t interested in listing the business.

Signaling Professionalism

For me, when you put your business listing with a broker, it almost doesn't even matter which one. It just shows a level of professionalism above and beyond anything that's listed on a marketplace.

The best message you want to signal to a buyer is “I’ve been educated on the process we're about to go through…”

When you list with a marketplace, my expectation is you have no idea what you're doing, your valuation is likely going to be way too high, you're going to be hesitant to share pertinent information, etc. 

Now let me add a caveat here. There are some brokers that I'm a little suspicious of, but that's okay.

There's a different level of quality across all broker charges as well as marketplaces. 

However, with even the most sketchy broker, I'm still going to trust a bit more than the best marketplace. 

Because I know the broker did something to validate the business.

A broker doesn’t want the reputation stain of selling something that turned out to be a phantom business or wasn't a good acquisition for the buyer.

Those bad sales always burn the broker in the end and nobody wants that on their record. 

Brokers …. On Marketplaces? 

There's one new trend I've seen that's confused me a tad bit.

The trend where a business will be listed with a broker and then the broker lists the business on a marketplace. I'm not quite sure why that's happening.

And the interesting thing is every time I see it, it's usually a broker that I've never heard of that doesn't work in the online business space and the businesses are almost always massively overvalued.

When I reach out and ask questions about the business, the broker seems more interested in getting me to look at their other listings instead of the one they put on the marketplace.

Listening to some podcasts, it seems those brokers claim listing on marketplaces “opens the business to more buyers”. 

Maybe they’re right…I’m not really sure, but it’s a trend I wanted to highlight and I’ll keep my eyes on it…

My Hope with Businesses For Sale

If you're looking at selling a seven/eight figure business, I'm really hoping it's coming through a broker, because now I know we have three parties involved, a buyer, a seller, and a professional broker, all of us working together to try and get to the finish line where everyone is happy.

And some of reaching that finish line is a result of brokers educating sellers and giving them guidance on how to move forward with selling their business properly.

In my personal opinion, I'm sure there are absolutely fantastic businesses that are put on marketplaces, sell for top dollar, and there are no issues with the sale.

But a majority of the time that is just not true. Most of my failed negotiations, DD period, etc, have been with marketplace-listed companies. 

Final Advice

I hope this summarizes a bit of why where you list your business really does matter.

I always encourage people to consider brokers because it's a strong signal to buyers that you're serious, you have a valid business, and you're prepared to sell.

If you're putting it on a marketplace, my first question is, “why didn’t you try and sell this with professionals? What is the problem with your business that you need to put it on a marketplace?”

Again, that's my personal opinion. I hope it helps.

If you are a Founder and may look to sell your SaaS business in the future - or know someone who may - make sure you’re signed up for this Newsletter and my YouTube channel. 

If you enjoyed this newsletter, or think there’s a Founder who could benefit, why not share it?

More from Founder Exit’s

• 📣 Miss the last newsletter on 3 Ways to Sell Above Market Value? Check it out here...

• 📈 Accredited Investors - Don’t miss the opportunity to invest in SaaS with me at WebStreet.

• Interested in Acquiring?

  Check out my Dev Driven Acquisitions newsletter.

Hello there,

Michael here again. It’s been a while! That’s my fault, been busy…

I’ve been reviewing a lot of businesses for sale and there are quite a few things I want to tackle for Founders in the next few newsletters.

First, let’s start with an essay that can really gain Founders some extra cash in their pocket during a sale…

This newsletter may get truncated by your email app. It's best to ​read the online version here​. (The online version also includes relevant images, tweets, and references).

In today’s issue, I’m going to focus on the three things that I would overpay to buy your SaaS business (as would most business acquirers).

Focusing on these three traits in your company will help you sell your business for higher than average market value. 

By that, I mean you can demand a higher multiple from a buyer and walk away with a lot more money (on less onerous terms), if you work to make sure your SaaS has these traits in the business before you bring it to the market for sale.

Most SaaS Businesses Aren’t Prepared To Sell

Most of the time, SaaS founders aren’t building their businesses with a plan to sell. 

Unsurprisingly, when they want/need to sell their business, there were choices made in the past that hurt their future sale price.

As a founder, when you want to sell, you’re competing against all other SaaS companies in the world for the same limited business buyer dollars.

The market you’re selling your business into has plenty of supply, time, and cash to wait for the right business with the right traits. 

Fortunately, some SaaS businesses already have these traits already inherent in their SaaS processes and makeup, whereas other companies have to work to add these features to allow them to be in a prime place to sell the business for top dollar.

Startup advice is oftentimes poor advice when pivoting to selling a SaaS business. 

A lot of times, you're being told by your professors or the entrepreneur community to do things that don't actually match up with what buyers are looking for when it’s time to sell.

Let’s dispel some of those mistakes and focus on how to increase the value of your company on the market, shall we?

What Three Traits Are Buyers Looking For and Your True Customer

• Who is your Goal Customer?

• Predictable Revenue Growth

• High Profit per Headcount

• Low Customer Churn

Who is your “Goal” Customer?

(Hint, it’s not the customers paying you today)

Remember, you always have two customers for your business. 

One customer is the group you are most likely familiar with on a daily basis. These are the customers that you sell your product or service to on a monthly or annual basis. 

The other customer is the group, person, or team that you're going to sell the business to in the future.

How often do you think about that second customer in your future planning of your business? 

Your future acquirer, that latter customer, would easily pay you more for your business with these three traits already imbedded in the business…

Predictable Revenue Growth

The first thing an acquirer is looking for is Predictable, boring, and increasing Revenue Growth.

Even if the revenue growth is very small, even a small percentage each month, over many years that starts to make really big differences to the bottom line.

Personally, I have a few companies that make a very small increase each month, but now that I've owned them for five to ten years, it makes a massive difference in my revenue and net income.

That's what buyers are looking for…something predictable, even if it's boring. 

We're not looking for hockey stick growth. 

Misguided Entrepreneurial Advice

In the entrepreneur community, you're always told to try and go for hockey stick growth, or to put your startup side hustle on product hunt (which, for a seller, is terrible advice).

The idea is that you should be acquiring users no matter what the cost. 

All of that popular entrepreneurial advice is not helpful when you sell the business and actually will harm the sale price of your business.

Predictable, routine, and uninspiring revenue growth is preferable to periodic spikes from giveaways, Product Hunt launches, or exploding CAC costs. 

We buyers want something that's predictable, something we can plan out long term. 

We want to be able to model it out so that we understand what's going on one, two, and five years from now so that it's all predictable and reliable growth.

High Profit per Headcount

The second trait is High Profit per Head Count. 

One of the biggest differences I'm seeing in 2024, probably continuing into 2025, is a lot of businesses that used to be VC funded are showing up for sale on marketplaces and brokerages.

Now that VC funding has dried up, these companies are inventing profit by cutting out some of their marketing and sales, yet they continue to keep their over bloated head count.

Even with that high head count, they're trying to sell at the same multiple as a business making the same amount of money with a much lower head count.

Those are not the same companies. Not when you’re selling the business. 

For example, let's say you make a million dollars in profit per year, but you have 40 employees and took on investment from a Silicon Valley VC.

That is a completely different business than a company that's also making a million dollars in profit, but only has one contractor and maybe the original entrepreneur working in the business.

Those two are valued completely differently. 

One may say, “Hey, the industry average is 4x for SaaS businesses”.

Well…True. 

But if you're bringing 40 employees, a retirement program, health insurance costs and expect to get the same valuation as the business that has none of that overhead and is leveraging 4x - 5x the profit per headcount, I'm going to tell you those two businesses aren’t valued the same.

I’m sure there’s some official business term that I slept through at my MBA program, however I discount the extra “hassle” a business with 40 low-profit team members would bring to my life and would likely pass on the business. 

So, remember, the second important thing is to have a high profit per headcount.

Focus on that and ignore entrepreneurial and Silicon Valley advice; do not add headcount if your profit/headcount is already low. 

Low Customer Churn

The third thing that's important is stickiness, which we usually call Low Customer Churn.

All SaaS founders are versed in churn, so this doesn’t require a lot of explanation. 

However, for the sake of thoroughness, low churn in a business makes it very hard to pull customers away from and easy to value going forward into the future. 

That's why I look at companies that are infrastructure, developer tools, and things that people either love or can't remove from their system without breaking their business.

Why I’d OVER pay for these three things all together in the same SaaS

If your SaaS has those three traits, then you can sell your business for a higher than average multiple. 

It’s not rocket science: 

• Boring, predictable revenue growth

• High profit per headcount

• Low churn with a sticky product or service

First of all, I’d over pay because all three of those things are really rare to find in one company. 

I would pay a higher multiple for this type of company because so many of the risks of ownership are negated with this type of business model.

If you have all those things, buyers are going to salivate for your business. 

That’s always what I’m looking for when I’m trying to acquire a business. 

That’s always what I’m trying to build after I acquire a business. 

So if you can spend a year or two working on your business, adding those pieces in there, getting the headcount down, making it more sticky, making your revenue more predictable, you're going to be able to sell for a much better multiple in the future.

It's worth the investment right now because buyers like me in the future want to give you more money when we buy a better business.

If you are a Founder and may look to sell your SaaS business in the future - or know someone who may - make sure you’re signed up for my Newsletter and YouTube channel. 

Not ready yet? Start executing what you learned in this issue.

If you enjoyed this newsletter, or think there’s a Founder who could benefit, why not share it?

More from Founder Exit’s

• 📣 Miss the last newsletter on Selling too Soon? Check it out here...

• 📈 Accredited Investors - Don’t miss the opportunity to invest in SaaS with me at WebStreet.

• Interested in Acquiring?

  Check out my Dev Driven Acquisitions newsletter.

Hey!

OK, let’s do this…the first six things Founders should stop doing when they’re considering selling their SaaS, Software, or Online business in the next 6-12 months.

Without further ado…

Thinking of selling? Even if you aren’t 100% sure, these are the six things I’d start (or, actually “stop”) doing if you are even remotely considering a sale in the next year.

All of them make your business better even if you decide not to sell.

Personal Expenses

The first thing you need to stop doing is running your personal expenses through the business.

I understand that almost all business people run certain types of personal expenses through their business for tax reasons. There’s absolutely nothing wrong with that and all business acquirers understand these expenses and the reasoning behind them.

However, that doesn’t mean it doesn’t muck up some of the sale process when you leave them in there.

For the year before you're going to try and sell your business, you want your books to be as clean as possible.

One of the best ways to do that is to start moving those personal expenses out into either a different business or into your regular personal accounts where they're supposed to be.

If you can't move something out - like health insurance - make sure it's well documented so that it is easy to add-back the expense into the calculation for the sales valuation for your business.

As a buyer, we really do not want personal expenses to be muddled in together with any business expenses because it makes the due diligence process harder both on you and on the future buyer team.

I know it’s annoying to do for that last year, but it’ll reward you when the business goes for sale. Trust me.

Annual / Lifetime Plans

The second thing you want to stop doing is selling annual plans.

And absolutely do not sell any lifetime plans…ever.

Think about it…Annual plans provide the seller all of the benefit and the buyer gets all the liability.

Therefore, the buyer is not going to reward you for annual plans and will likely discount those sales from the Income valuation of your business.

For example, if you sell an annual plan in the month of December and someone buys your the business in the month of February, that means you got 100% of the reward and the buyer gets 10 months of liability for that customer where they receive no compensation.

The buyer is going to take that 10 months of income off of your market valuation.

Additionally, if you're selling multiple annual plans, it's much more difficult to determine the churn rate for customers that have to make a decision once a year versus people that have to make a decision every month.

Think of how reliable it is to look at monthly revenue and know whether a customer is going to come back the next month…

Have they been signed up for the last 26 months without a break in payment? If yes, then they are going to probably be there for month 27 and you can say with a level of certainty that the customer MRR revenue will continue.

If you have an annual plan that paid one time, eight months ago, what certainty do you have that the buyer is going to sign up again in a few months?

That annual churn number is almost always higher and a buyer is going to discount your business net income based on the number of annual plans you have.

The goal is to get as many of your customers on monthly plans with no discount. Plus, there’s another advantage - you do not have to provide a 10 or 20% discount like many companies do for annual plans.

I realize all of this is counterintuitive to what everyone tells you to do online and in entrepreneurial forums. But if you're going to sell your business in a year, stop selling annual plans and never ever sell lifetime subscriptions.

I’m begging you…please don't ever sell lifetime plans, ever.

Bookkeeping

The third thing you need to stop doing is not doing your bookkeeping.

Buyers need really, really want good clean financials.

One of the hardest parts of due diligence to get through multiple years of financial expenses and revenue calculations. It sucks for both parties.

Good financials is one of the things that small software companies (and individual entrepreneurs) usually don't do very well. Sometimes the accounting isn't done at all and all we get is a pile of tax returns.

If you can get professional bookkeeping and get your accounting into Quicken or Xero and show how money comes into your business, how it's expensed, and why the business is profitable, it will put you way ahead of most other sellers.

If you have personal expenses in there, it makes it much easier to pull that out and add it back.

I recognize that getting professional accounting and bookkeeping is an annoying and costly expense. But hire that bookkeeper for one year, get your accounting straight, then when you sell the business, that's not going to cost you any value because buyers will add that expense back into your valuation.

You should assume that every buyer has their own bookkeeper. If it costs you $100 a month for a bookkeeper, that's not going to hurt your sale price because the buyer is going to add it all back since they will use their own accounting team.

Don't worry about the cost - because it's going to pay off 10 times over if you have good accounting numbers.

Make your accounting as professional and easy to follow as possible.

Unnecessary Expenses

The fourth thing you need to stop experimenting with unnecessary expenses.

Every business is going to have a little bit of unnecessary expenses.

Sometimes it's an attempt to see if a new tactic will get you new revenue. Sometimes it's just something that's somewhat personal, somewhat business.

In my case, I would say something like Ahrefs is a not something I really need to track for my businesses because my products are sold on marketplaces. My SEO ranking is just not as critical, yet I keep track of it using Ahrefs just for my own personal interest.

Yet, that’s not really a necessary expense for the business, so if I were going to sell this business in the next year, I'd cancel that subscription.

But a word of warning, do not cancel services that are growing the business and do not cancel expenses that are essential to running the business, because buyers are going to know that and we're going to catch it.

If all of a sudden you cancel your CRM, cancel all of your marketing, and cancel all of your advertising, that is going to show up in your revenue growth over the next year.

And we're going to respond that you need to have those essential things in the business.

By cutting them out, you're actually hurting your valuation.

We're going to have to add them back in there and add that cost to your valuation.

Again, don’t cut necessary services that generate the growth for your company just because you may sell in the future.

We will not reward that at all…

Professionalize Your Business

The fifth thing you need to avoid doing is not being a professional business yet.

By that I mean the business needs to be incorporated, it needs to be operating all transactions through business bank accounts, and it needs to have business credit cards.

This makes it all very easy for buyers to recognize that you're running your business professionally, especially if you tie it in with really well done accounting.

When we see a company has really good accounting, everything is professionalized, they're incorporated correctly and maybe they even have a trademark for the business, it creates a lot of trust.

Creating that trust between the buyer and the seller - where we're both professionals and are going to work together - can really do wonders for the sale of your business.

Buyers will always find mistakes in due diligence and it's going to be much easier to get past those issues/questions when buyers know that you're a professional and the mistake is likely not intentional and just a consequence of normally running a business.

Make sure you're running in a corporation, in an S-Corp or an LLC, whatever you choose for your own personal situation.

Make sure you're using business bank accounts.

And make sure you have business credit cards and no personal expenses in there, only business expenses.

This makes your life really easy during due diligence, and makes it really easy for you to survive the sale of your business.

Documentation

Finally, the sixth thing is stop avoiding is doing company documentation, stop avoiding doing SOPs, stop avoiding commenting your code.

I know it sucks, I hate it myself, I hate doing SOPs, I hate bothering my developers to comment the code and remind them all the time that it needs to be done.

My suggestion is to take 30 minutes every other day, work on documentation.

It's going to help you in three different phases of your sale.

The first phase is it’s going to show a lot of professionalism when we are in the negotiation phase, as well as in the LOI stage.

Second, when we’re working on due diligence, we're going to be asking about comments in your code, how easy is it to read, how well documented your code base is, how well documented your software is, how well documented your standard operating procedures are for outsiders to review your company.

If something happened to you tomorrow, how would I take it over?

What if something happens to you the day you sell the business to me?

I need to be confident that I can actually run it now because I have all the risk, you have all the money, and if something happens to you, I now need to run the business starting day one.

I've got to be sure that you have that documentation in place.

It also causes a double benefit, because in the end you need that documentation in case something does actually happen to you or your team members.

For example, for me, my wife has a book with everything I do every day.

So if I'm hit by a bus and out of commission for 30 days, she can run the business. If I'm hit by something bigger than a bus, she can sell the business and hand over the documentation to the new owner.

The third benefit is during the transition phase. Once we've closed the deal, done the handshake and we're all high-fiving, we now have to go through the transition phase.

We have to do a lot of knowledge transfer. I have to learn everything that you and your team know, so handing me the documentation makes it easy for you because you can just throw it in my lap and say, “Michael, you read this, it's all in here”.

You don't have to waste your time with it as much. So with those three things, it really helps convince the buyer that you're a legit professional.

Make sure you do the documentation. Make sure you comment your software code. It's going to benefit you both on a sale and in your day to day work.

It helps with due diligence and information. helps with the transition.

Summary

If you do those six things a year before you look to sell your business, you wouldn’t believe how much more your company will stand out, how much more it will get at the sale, and how much easier the sale process will be for you.

Most second-time sellers do these things, because they learned the first time around what a big mistake it was to not have done these things when they sold their first business.

Please use this crib sheet as guidance to sell your first business like you’ve done this before…and walk away with a maximized valuation and a relationship with a good buyer that you’re happy to handover your company to going forward.

If you enjoyed reading this newsletter, why not share it? (promote)

More from Founder Exit’s

• 📣 Miss the last newsletter on Selling too Soon? Check it out here...

• 📈 Accredited Investors - Don’t miss the opportunity to invest in SaaS with me at WebStreet.

• Interested in Acquiring?

  Check out my Dev Driven Acquisitions newsletter.