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How much is your software company worth?

By Rachel Jackson

Software companies are a huge industry, with our lives increasingly growing more digital. More of them are appearing, but they are also growing in value at the same time. How much could your software company be worth? Let's take a look at the statistics.

Best-selling businesses

In looking at recent sales, it seems that software companies have fast become the most profitable business to own. The Digital Exits 2016 Business Valuation Report suggests that software companies sell at the highest prices - selling for an average 2.87x multiple throughout the year.

The best-selling software business of the 2016 report went for an 8.29x multiple. If you own a software business, you might well be rubbing your hands with glee at that news - and you would be right to. It seems that SaaS models really are the most profitable right now.

This means that you could be looking at a ROI which is much higher than you think. Taking the average, you should be able to work out how much your business might sell for - though the statistics of course do not reflect the exact current state of the market.

It actually seems that the average sales multiple dropped in 2016 compared to 2017, but that doesn't mean it won't go up this year.

Average values

So, how much does a software company usually sell for, anyway? Well, we have the statistics there as well.

In the period between 2013 and 2016, the average sale was $667,000. While some sales were obviously much higher, and some were actually a bit lower, this must be an encouraging figure for a business owner to see.

It's also important to take into account that some businesses will fly very high over this average - and we do mean very high indeed. Every once in a while, someone like Google, Facebook, or Amazon will spot an opportunity to purchase a company that they will add to their roster of services. Their purchases tend to range in the millions or billions of dollars on a regular basis.

Optimum selling time

Figuring out how much your software service is worth is only half of the battle. The other half is trying to decide how much it will be worth next year - or even in the next six months.

Since value is usually decided based on turnover, many companies will see a high point at which the sales value would be at its peak. It's difficult to see this coming in advance. We know already from numerous examples that software can rise astronomically, see a huge influx of new users and profits, only to fall and be replaced by a new rising star.

Rather than holding out for bigger profits, some entrepreneurs choose to sell early on in the company's life cycle. Others hold out until it is too late - and the value of the company crashes, or a sale is no longer possible.

One option is to estimate future profits and use this to form your multiple - but you must have strong data to back it up.

Estimating future profits can be difficult in the software industry, but a wise company owner might consider deciding on a figure ahead of time. How much would you like to make from your software business? If you can do that, then you will also give yourself a goal to work towards.

When all is said and done, your software company may well be worth the amount you can persuade someone to buy it for. Sadly, there's no quick and easy way to value it - but happily, that means you may be able to increase your sale price.

About the author

Rachel is a mother of 2 beautiful boys. She loves to hike and write about travelling, education and business. She is a Senior Content Manager at Bizset.com - an online resource of relevant business information.



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