Knowing when to sell your IT services business is one of the toughest decisions you’ll face. There are two key indicators, however, that signal the time may be right if your growth has stalled or stagnated to sub-10%: You’re no longer excited about driving new revenue, and the tax implications may be in your favor.
Selling your firm when it’s not growing can be so hard because you’ve poured your blood, sweat, tears, and countless hours into it. But if you’re not growing, that means you’re dying. That’s emotionally draining and can feel like the beginning stages of grief when you’re letting go of a precious loved one who’s on life support.
But eventually, you’ve got to face the reality of selling your business: the acceptance stage.
Flat, Sub-10% Growth
If you’re experiencing less than 10% growth, then you should consider selling your IT firm.
Here’s why.
If you’ve been in a groove where you haven’t seen more than 10% growth, it’s the telltale sign that you’re probably burnt out. And that’s OK, because none of us are superheroes. (Although some of us DO wear capes.)
Many IT services business owners we talk with who are facing stagnant growth are no longer excited about growing their firm. The idea of going into a growth season just isn’t as enticing as it once was.
If you can relate to this stage, then you’re probably not feeling excited about going into the office anymore either. After all, it can be a grind putting out fires, dealing with client issues, training new employees, and constantly retooling the suite of software you’re offering.
It’s stressful—and mindset is a big part of growing your business. If you’re not in the right head space anymore to go for growth, then it’s time to sell.
Tax Implications
The second reason to sell is for tax purposes. Here’s some interesting tax stats sure to open your eyes on why you should sell now:
- More than 60% of IT professionals who sold their businesses say they didn’t feel they received what they deserved when selling because of a poorly designed valuation and tax strategy.
- Calculation of taxable income is one of the most common challenges in selling your firm, according to Forbes, which heavily impacts your sales price and valuation.
- Not all transactions are taxed – some mergers and acquisitions may be tax-free if a reorganization takes place.
- Bloomberg says the potential tax consequences of a merger or an acquisition for an IT services business dictates that as one of the most critical aspects of structuring your transaction.
Businesses always have a way around taxes, though it is easier when you’re not in hyper-growth mode. If you’re facing increased competition, higher costs, and lower profits that hinder growth and expansion, then your tax responsibility considerably decreases, which makes it a great time to sell.
Before you do, however, there’s one very important key factor to think about: What is your company’s fair economic value?
A certified valuation done by a certified valuation consultant can help you determine that. A valuation can save you money by helping you establish how to get as much from the sale as possible and avoid typical problems related to a lack of due diligence or proper financial review. A valuation can show you where your value gaps exist and what to do about it to sell at the number you want.
You’ve worked hard to build your business. Recognizing the right time to sell is a fitting capstone.
REED WARREN is CEO, Certified Valuation Analyst (CVA), and value builder advisor at iT Valuations. During his 30+ years working in the IT Services and technology industry, he’s provided business strategy, consulting and M&A services (60+ successful transactions) to over 250 companies across 19 different countries. Learn more about iT Valuations here.
