Fri 30th January 2015
As we discussed in an earlier edition “Who would buy your IT support / telecoms business?“, buyers of ICT companies with revenues in the £500k to £5m bracket are most likely to be strategic trade buyers and one of the key elements of their acquisition is your client base.
In putting together your sales and marketing plan, bear in mind the following 5 top tips. Depending on where your company lies in the business growth cycle (see Tipping points for the sale of an ICT business), some of these points will be more relevant than others.
1. Diversify client revenues
Reduce the dependency on your top one to three clients. As a guideline, no one client should represent more than 15% of your revenue.
2. Ensure that the revenues and sales process are not dependent on you
Ensure that someone-else within the business is able to perform the complete sales function from initial enquiry, through bidding and quoting, to winning the contract.
Businesses that depend on the owner to win new sales (or indeed the strong relationship between the owner and existing clients to maintain recurring business) will represent a major risk to buyers.
If you do not have a sales process, develop one. Have one full time member of staff attend initial sales meetings with clients and take on your current roles in the process.
3. Maximise the proportion of your revenue generated by service contracts
Maintenance contracts, service contracts or retainers represent regular guaranteed income with little further sales effort for the buyer. As such they represent significant inherent value. Moreover, as you will be in touch with your clients on a regular basis, these contracts in turn are like to generate further project work. As a guide, ICT Support businesses should aim for at least 50% of revenue to be generated from service contracts and minimise the proportion of hardware/software re-sales revenue.
4. Maximise the duration of your maintenance contracts
This will allow buyers more time to get to know your clients before the next renewal. Contracts with a 30 day notice period or which are due to expire within a month of the sale, will be viewed as higher risk and thus valued less by the buyer. Aim for at least a 12 month contract with a 3 month notice period before renewal. For more on the value of service contracts, click here.
5. Align your pricing and service with industry standards
Don’t be the cheapest, buyers will not be able to offer a better package to your clients and therefore will find it more difficult to transfer the contracts. Your clients’ key concern is continuity of service. An ideal buyer will have a service offering and ways of operating which are similar to yours.