What Steps Should I Take to Prepare My Software Company for Sale?

Preparing a software company for sale is not a checklist exercise — it’s a strategic transformation. Whether you’re a founder eyeing retirement, a CEO seeking liquidity, or a board member exploring strategic alternatives, the decisions you make in the 12–24 months before a transaction can significantly impact valuation, deal structure, and post-sale outcomes.

This article outlines the key steps to prepare your software company for a successful exit, drawing on insights from real-world transactions and the experience of M&A advisors like iMerge, who specialize in software and technology deals.

1. Define Your Exit Objectives Early

Before diving into financials or due diligence, clarify your goals. Are you seeking a full exit or partial liquidity? Do you want to stay on post-sale or transition out quickly? Are you optimizing for valuation, cultural fit, or strategic alignment?

These answers will shape everything from the type of buyer you target (strategic vs. financial) to how you structure the deal (asset vs. stock sale). As we’ve discussed in Asset versus Stock Sale, the structure has material tax and legal implications — and should be aligned with your personal and corporate objectives from the outset.

2. Get Your Financial House in Order

Buyers — especially private equity firms and strategic acquirers — expect clean, GAAP-compliant financials. If your books are cash-based or loosely managed, now is the time to upgrade. Key steps include:

• Engaging a reputable CPA firm to prepare reviewed or audited financials
• Normalizing EBITDA by identifying add-backs and one-time expenses
• Segmenting revenue by product, customer, and geography
• Highlighting recurring revenue metrics (MRR, ARR, churn, LTV/CAC)

As we noted in What Are the Key Financial Metrics Buyers Look For in a Software Company?, recurring revenue quality and margin profile are often more important than top-line growth alone.

3. Strengthen Operational and Legal Infrastructure

Operational risk is a valuation killer. Buyers will scrutinize your contracts, IP ownership, compliance, and team structure. To prepare:

• Ensure all customer and vendor contracts are documented, assignable, and up to date
• Confirm that all IP is owned by the company — not contractors or founders
• Address any outstanding litigation, regulatory, or HR issues
• Implement or document key internal processes (e.g., DevOps, security, customer support)

Firms like iMerge often conduct a “pre-diligence” review to identify red flags before buyers do. This proactive approach can prevent surprises during the LOI or due diligence phase — a topic we explored in Completing Due Diligence Before the LOI.

4. Optimize for Valuation Drivers

Valuation in software M&A is driven by more than just revenue multiples. Buyers assess strategic fit, growth potential, and risk. To enhance value:

• Reduce customer concentration — ideally no single customer should account for more than 10–15% of revenue
• Demonstrate scalable growth — show a clear path to expand ARR with existing resources
• Highlight defensibility — proprietary tech, switching costs, or network effects
• Showcase a strong team — especially if you plan to exit post-transaction

In our analysis of Valuation Multiples of SaaS Companies, we found that companies with low churn, high gross margins, and strong net revenue retention consistently command premium multiples.

5. Prepare a Compelling Story and Data Room

Buyers don’t just buy numbers — they buy narratives. Your CIM (Confidential Information Memorandum) should tell a cohesive story about your market, product, team, and growth trajectory. It should be backed by a well-organized data room that includes:

• Historical and projected financials
• Customer and revenue metrics
• Product roadmap and IP documentation
• Legal, HR, and compliance materials

Think of this as your company’s investment-grade pitch. A seasoned M&A advisor can help craft this narrative and anticipate buyer questions before they arise.

6. Engage the Right M&A Advisor

While some founders consider going it alone, the complexity and stakes of a software exit often warrant professional guidance. A specialized M&A advisor brings:

• Access to qualified buyers — including private equity, strategics, and family offices
• Valuation benchmarking and deal structuring expertise
• Negotiation leverage and process management
• Experience navigating earn-outs, escrows, and reps & warranties

As we outlined in 8 Ways Top M&A Advisors Increase Value During the Transaction, the right advisor can often add 10–30% to the final purchase price — not to mention reduce execution risk.

7. Plan for Taxes and Post-Sale Life

Finally, don’t overlook the personal side of the transaction. Work with a tax advisor to model different deal structures and their after-tax outcomes. Consider:

• Capital gains treatment vs. ordinary income
• State residency and tax planning
• Trusts, estate planning, and charitable giving

Our article on Tax Law Changes and the Impact on Personal Taxes from Selling a Software Company offers a deeper dive into these considerations. Equally important: think about your next chapter. Whether it’s launching a new venture, joining the acquirer, or stepping away entirely, clarity on your post-sale goals will inform how you approach the deal.

Conclusion

Preparing your software company for sale is a multi-dimensional process — part financial engineering, part strategic storytelling, and part operational cleanup. The earlier you begin, the more options you’ll have and the more value you can unlock.

Use this insight in your next board discussion or strategic planning session. When you’re ready, iMerge is available for private, advisor-level conversations.