Sell A Software program Provider – The Valuation Dilema

Computer Programs For the Guitar - Software That Helps and Others That Do Nothing

The most helpful computer programs for guitar are simple metronomes.

* Chord Chart Software

If you’re going to play along with some music, there’s really no need to do it with computer programs for guitar. Don’t purchase software just so you can have a guitar buddy.

Computer Programs For the Guitar – Software That Helps and Others That Do Nothing

One of the most challenging aspects of selling a software company is coming up with a business valuation. Why are some of these software company valuations so high? Let’s say the license cost is $400. The gross margin is north of 99%. The acquiring company, however, does not want to compensate the small seller for the post acquisition results that are directly attributable to the buyer’s market presence. This is what we refer to as the valuation gap.What we attempt to do is to help the buyer justify paying a much higher price than a pre-acquisition financial valuation of the target company. Cost for the buyer to write the code internally – Many years ago, Barry Boehm, in his book, Software Engineering Economics, developed a constructive cost model for projecting the programming costs for writing computer code. Thirdly, we have to apply discounts to this analysis if the software is three generations old legacy code, for example. You are no longer a technology sale with high profitability leverage. The second high value platform would be where your software technology “leap frogs” a popular legacy application. Our client became a compelling strategic acquisition. We had one client that was a small IT company that had developed a fine piece of software that compared favorably with a large, publicly traded company’s solution. We generally like to build in a baseline value (before we start adding the strategic value components) of 2 X contractually recurring revenue during the current year. So, for example, if the company has monthly maintenance contracts of $100,000 times 12 months = $1.2 million X 2 = $2.4 million as a baseline company value component. Again, this financial analysis is to establish a baseline, before we pile on the strategic value components.5. Don’t overlook the strategic value of Blue Chip Accounts. Those accounts become a platform for the buyer’s entire product suite being sold post acquisition into an installed account. 6. Finally, we use a customer acquisition cost model to drive value in the eyes of a potential buyer.