Selling a technology or software business: what changes the price

From Matt Behrens, who has bought businesses for 15 years · 2026-10-02

If you built a software or technology business, you probably know the product better than anyone alive. A buyer knows that too, and worries about it. They are not only buying what the product does today. They are buying the chance that it keeps working, keeps selling and keeps improving after you step back.

The situations that change your price in technology and software

Recurring revenue and churn

Buyers like revenue that repeats without anyone having to win it again. A customer who pays every month or every year is worth more to a buyer than one who buys once, because the buyer can see what next year probably looks like.

What they will check is whether it really repeats. They will ask how many customers left in the last few years, why they left, and whether the ones who stayed pay more or less over time. Cancellations that bounce around from month to month, or a pile of customers on month-to-month terms, make the same revenue look riskier. Be ready to explain every customer you lost, in plain words.

Retention curves, by cohort

The first thing a buyer looks at in diligence is customer retention, or churn, and they look at it by cohort. A cohort is the group of customers who started in the same month or quarter. The buyer follows each group over time to see how many are still paying after 3, 6, 12 and 24 months, and how much revenue each group is worth now compared with when it started.

A single churn number can hide a lot. A business can show a healthy average while its newest customers leave much faster than its older ones, or while a few large, loyal accounts mask steady losses among the smaller ones. Buyers also want revenue retention and logo retention separately, and they want to know whether customers expand what they buy over time. Flat or improving curves tell a buyer the product sticks. Curves that keep falling tell them they are buying a leaky bucket.

If you do not have this analysis, start building it now. It takes a customer list with start dates, cancellation dates and monthly revenue, and it is one of the most useful things you can bring to a first meeting.

Who owns the code and the intellectual property

This one surprises owners. A buyer wants proof that your company, and not a person, owns the software. If a freelancer or contractor wrote part of it years ago with no signed agreement, ownership can be unclear. The same goes for code from a former partner, or software you built on top of someone else's work with terms you never read closely.

Buyers will ask for signed agreements with everyone who touched the code, and a list of any outside components you rely on and how they are licensed. Missing paperwork does not always kill a deal, but it slows it down and gives the buyer a reason to ask for a lower price or more protection. Ask a qualified attorney to review where you stand.

Technical debt and the age of the platform

Buyers want to know that old technology will not limit future development, and that they will not have to rebuild on a new platform soon after they buy. Technical debt is the accumulated cost of shortcuts, outdated components, missing documentation and code that is hard to change safely. Every product has some. What matters is how much, where it sits, and what it would cost to fix.

Expect a buyer to bring in a technical reviewer, who will look at the age of the platform and its main frameworks, whether the vendors and open source components you rely on are still supported, how hard the code is to change, the quality of the testing and deployment process, security practices and how well everything is documented. Anything that points to a costly rebuild comes straight off the price, and sometimes it ends the conversation.

The best defense is to know your own list first. Write down what is old, what is fragile and what a fix would cost, and show a sensible plan for it. A known, scoped problem is far easier to price than a surprise.

Dependence on key engineers and on you

In many small tech companies, one or two people truly understand how it all fits together, and one of them is the founder. A buyer will ask what happens if that person leaves, gets sick or simply gets another job.

Matt's experience: Years ago I sold one of my businesses that relied heavily on its technology platform. The buyer hired a technology consulting firm that spent a full day interviewing our tech team about our development process, code ownership, redundancy and more. Because everything was well documented, we had very little tech debt, and our team loved working there, we passed the test with flying colors and sold the business for over $85 million. In contrast, I once bought a business built on a decade-old system that its vendor no longer supported. I paid no cash up front, even though it had $150 million in revenue, because I priced in the risk of rebuilding the platform (among other things). The rebuild affected customers more than we expected and essentially killed the business. We ended up selling it for scrap (IP, name and so on).

The answer buyers like is boring: the system is written down, more than one person can fix it, and the important people have agreements and reasons to stay through a transition. The answer that costs you is "only Dave knows how that part works."

Customer concentration and contracts

If a few customers produce most of your revenue, a buyer sees a business that could shrink quickly if one of them walks. Contracts matter here. A buyer will read them for how long they last, whether they renew on their own, and whether a customer can cancel if the ownership changes. Some contracts need the customer's permission to transfer to a new owner, and it is far better to learn that now than halfway through a sale.

What a buyer and a lender will ask

A buyer will ask for retention and churn by monthly or quarterly cohort, a review of the technology and its technical debt, and three years of financials that tie to your tax returns, a customer list showing how long each has been with you and what they pay, and a clear split between software revenue and services or custom work. They will also want to know who built what, who can maintain it and what it costs to host and run.

A lender, if the buyer is borrowing, will focus on whether the earnings are steady enough to repay a loan. Software often has few physical assets to pledge, so lenders lean heavily on the strength of the contracts and the track record. Steady, well-documented revenue makes their job easier.

Buyers also look at how much of your income comes from one-off projects versus the product itself. A mix is fine, but they will price the two differently, so know your own split before they ask.

What to fix 12 to 24 months out

1. Collect the paperwork on ownership. Get signed agreements from every employee and contractor who worked on the code, and ask an attorney to help close any gaps.
2. List your technical debt and write down how the system works. Keep it in plain language, including how to deploy it, where it is hosted and who holds the important passwords.
3. Share the knowledge. Train a second person on every critical part so no single person is the only answer.
4. Move customers onto longer, written agreements where it makes sense for them and for you.
5. Track retention by cohort and why customers leave, and fix what you can.
6. Clean up the books so software revenue, services revenue and one-time items are easy to see.
7. Make yourself less necessary. Hand off customer relationships and day-to-day decisions, and see what breaks.

Common questions

Do I need to fix all of the technical problems before I sell?

No. Every real product has rough spots. Buyers are more bothered by surprises than by flaws, so list what you know is wrong and what it would cost to fix, rather than hoping nobody finds it.

Will a buyer want me to stay on after the sale?

Often, yes, for a transition period. How long and on what terms is part of the negotiation. The better documented the business is, the shorter that period tends to be.

Is software revenue always worth more than services revenue?

Not always, but buyers generally trust repeating product revenue more than revenue that has to be sold again each time. How much more depends on the business, the buyer and the market, and Homestretch cannot promise any particular price.

This guide is educational planning information, not legal, tax or investment advice.