How to Buy a Small Tech Company

There are thousands of small tech companies for sale at any time-they are often websites that take 1 or 2 people to run. There are listed for sale on bizbuysell.com, Flippa.com and similar sites. They can be run from home. Sometimes they require a particular expertise but other times they can be managed by the owner and technical or time-consuming work can be done by contractors, often offshore.

Some examples are Amazon reseller businesses, or other ecommerce sites. There are many ways to make money, such as affiliate marketing to refer traffic to a bigger site, pay per click to bring in traffic, or adsense to get people to click on ads. Converting traffic to customers is key. SEO is one thing that impacts this-also things like site speed and content are important. Also flipping the business or providing premium content are other ways to monetize the site.

If you have a desire to own a small tech business and don’t want to start it from scratch, buying one is often a great solution.

Regardless of intention and how you ended up with the new business, there are several considerations to plan for, especially on the tech side.

    1. Have the previous owner stay on after the sale. The owner can serve as an advisor or consultant for a predetermined period of time. This can add some much-needed stability during the transitional period.
    2. Start with minor changes. Customers may react unfavorably to sweeping changes. Therefore, at the beginning, less is more. Make minor changes and pay attention to your customers’ initial reactions. It’s important to maintain site traffic. If you change hosting, site appearance, plugins or social media ensure you do in a test environment first and plan for/minimize interruptions.
    3. Ask lots of questions and take notes. Let the previous owner and the staff teach you how to run the business. You can implement new procedures, but before doing so, make sure you know how things are currently done. Only then can you make informed decisions on changing business processes.
    4. Maintain current record keeping-procedures. Do your best to ensure that records and to-do items remain on schedule through the transition.
    5. Review customer service policies. Customers are used to having issues handled in a certain manner. Review the policies and maintain them for the first few months. After the transition is complete, amend them as necessary.
    6. Familiarize yourself with your new technology. While meeting the people behind the business and learning the procedures is important, you must also learn as much as you can about the technology that supports the business. You need to familiarize yourself with software programs and learn about their shortcomings. Learn what has gone wrong and in the past and what shouldn’t be ‘messed with’.
    7. Do something nice for customers. Make sure any site conversions or feature changes don’t turn off loyal customers. Offer something free to make up for this.
    8. Reward Employees. Hiring new employees is almost always more expensive than retaining existing ones and losing technical talent can be even more expensive and destroy value. Employees in tech startups tend to be younger, require more autonomy which means adhering to strict scheduling might not work for them.
    9. Plan your M&A Integration Strategy. “Fail to prepare, prepare to fail,” as the old adage goes. And it very much applies to M&A technology integrations. If you wait until Day 1 post-merger to start the groundwork, then you’re already behind. Soon after an acquisition, IT leaders are under pressure to deliver on expectations to produce cost savings and enable synergies, and it’s ten times harder if they haven’t devised a clear strategy for M&A IT integration beforehand. Start planning the overall M&A technology integration strategy while the paperwork is being finalized so the team can get ready to hit the ground running.

Thousands of mergers and acquisitions have problems during transition each year and the only way to avoid this situation is to plan ahead and pay close attention to the details.

Exit Strategies values control and minority ownership interests of private businesses for tax, financial reporting, ownership transfer, strategic and other purposes. If you’d like help in this regard or have any related questions, you can reach Bob Bates, CPA, CVA, CFE at (415) 793-7777 or bbates@exitstrategiesgroup.com.