How to buy a SaaS business (and check the numbers before you do)
Short answer
To buy a small SaaS business, verify recurring revenue straight from the billing system and payment processor (not a dashboard screenshot), build churn and retention by customer cohort, check gross margin after hosting and third-party costs, have a developer review the code and infrastructure, and plan how the product keeps running if the founder leaves.
Then confirm every asset will actually transfer: code repositories, domains, cloud accounts, app store listings and IP assignments from anyone who wrote code.
Small SaaS businesses look ideal on paper: recurring revenue, high margins, no premises, no inventory. The risks are just less visible. Revenue can leak through churn you haven't measured, costs can hide in usage-based hosting bills, and the whole product can depend on one person who knows where the bodies are buried in the code.
How a small SaaS business makes money
- Subscriptions, monthly or annual, sometimes tiered by seats or usage.
- Expansion: upgrades, extra seats, add-ons.
- One-off fees: setup, implementation, custom work. Treat these separately from recurring revenue.
Costs that matter: hosting and infrastructure, third-party APIs and tools, payment processing, support staff or contractors, and the founder's unpaid development time.
Verify revenue from the source
- Export subscriptions from the billing system (with you watching, or via read-only access): every customer, plan, price, start date, cancellation date.
- Rebuild MRR by month for at least 24 months. Compare with what the seller reports.
- Reconcile to the processor and the bank. Processor payouts should match deposits; annual plans create big months that need spreading. See proof of cash.
- Build cohorts: for each signup month, how much revenue remains after 3, 6, 12 months.
Add-back traps in SaaS
| Claim | Reality check | Typical rating |
|---|---|---|
| "I'm the only developer, add back my salary" | Someone has to maintain and ship code. Budget a developer. | Shaky |
| "Paid ads were an experiment" | If signups fell when ads stopped, they're a cost of growth. | Shaky |
| "Hosting will be cheaper after migration" | Pro forma. Your project, your upside. | Unsupported |
| Annual prepayments counted as one month's revenue | Spread over the term; unearned portion is an obligation. | Adjust |
| Contractor costs for a one-time rebuild | Check history: is something always being rebuilt? | Shaky |
Worked example: net revenue retention
Illustrative example, not a real company
A year ago the customers then active paid $40,000 a month. Today those same customers pay $37,200: some cancelled ($4,800 lost), some downgraded ($1,000 lost), some upgraded or added seats ($3,000 gained). Net revenue retention is $37,200 ÷ $40,000 = 93%. New customers added $6,800 of monthly revenue, so total MRR rose to $44,000, 10% growth. But the existing base shrinks about 7% a year on its own, so growth depends on continuing to sell at the same pace. Ask for MRR movements by month (new, expansion, contraction, churn) for 24 months, from the billing system, not a spreadsheet. A business with retention above 100% grows even without new sales; one well below it is running to stand still.
Technical diligence
- A developer you trust reviews the codebase, dependencies, test coverage and deployment process.
- Security: how credentials, customer data and backups are handled; any past incidents.
- Infrastructure costs by service, and how they scale with customers.
- Third-party dependencies: APIs or platforms that could change pricing or terms.
- Documentation good enough for someone else to deploy and fix.
Documents and access to request
- Billing system and processor exports; bank statements; tax returns.
- Customer list with plan, MRR, tenure; top-customer contracts.
- Support ticket history and response times.
- Privacy policy, terms of service, any data processing agreements.
- IP assignments from every founder, employee and contractor who wrote code; open-source licence inventory.
- List of every account to transfer: domain registrar, cloud hosting, code repository, email, app stores, analytics, billing.
Transfer and transition
Most small SaaS deals are asset purchases. Plan the handover of every account carefully, ideally with escrow so the seller isn't paid until the transfers are done. Customers' payment methods may need to move to your billing account, which some customers will fail to complete; plan for that churn. Keep the founder available for a meaningful transition, especially if they wrote the code. buying an online business.
Valuation multiples for small software companies: what drives them
Small software and SaaS businesses are often valued on a multiple of annual recurring revenue (ARR) or of earnings, and the multiple depends on how durable and how fast-growing that revenue is. The main drivers are churn, net revenue retention, growth rate, gross margin, customer concentration, platform dependence, code quality and whether the founder is the only developer.
Public SaaS multiples don't translate to small private companies. We don't quote ranges we can't verify; specialist brokers and appraisers track comparable small software deals.
Software businesses can look like perfect acquisitions: high margins, recurring revenue, no inventory. The multiple a buyer should pay depends on how much of that is real and durable.
The drivers
| Metric | Why it matters | How to verify |
|---|---|---|
| Monthly / annual recurring revenue | The base everything is built on | Billing system export, processor data, bank |
| Logo and revenue churn | How fast the base leaks | Cohort tables by signup month |
| Net revenue retention | Whether existing customers grow | Cohort revenue year over year |
| Growth rate | Future revenue | Monthly MRR for 24+ months |
| Gross margin | Hosting, support, third-party costs | Vendor invoices |
| Customer concentration | Risk of one loss | Revenue by customer |
| Platform dependence | App store or marketplace rule changes | Acquisition channel data |
| Code and founder dependence | Can it run without the seller? | Code review, documentation, other developers |
Cautions
- Public SaaS multiples aren't comparables for a small company with one founder.
- Annual prepaid plans inflate cash received; recognize revenue over the term and treat unearned revenue as an obligation you inherit.
- Revenue multiples hide margins. Convert to an earnings multiple. See revenue multiples.
What's in cost of revenue
SaaS margins depend on what the seller counts as the cost of delivering the product. Rebuild gross margin yourself, including hosting and infrastructure, third-party APIs and licences charged per customer, payment processing, customer support staff, and any contractors who keep the product running. Small SaaS sellers sometimes put these in operating expenses or pay them personally, which makes gross margin look higher than it is. Ask for the hosting and tool invoices for the last 12 months, and check how costs grew as customers were added.
Customer contracts and data obligations
Business customers often sign terms that include data processing commitments, security obligations, uptime promises and limits on assignment. Read the standard terms and any custom contracts with larger customers. Check where customer data is stored, whether any personal data is processed, and which privacy laws may apply. Ask about any security incidents, and whether customers were notified. In an asset purchase, contracts with assignment limits may need customer consent.
Payments and app store accounts
Subscription billing usually runs through a payment processor or an app store account. Confirm how each one transfers: some can be moved to a new owner, others must be recreated, which can force customers to re-enter payment details. Plan the switchover with the seller so renewals aren't lost.
Ask for the product roadmap and the list of open bugs. Both show what you will be working on first.
Frequently asked questions
How do I verify a SaaS company's MRR?
Get read access or a direct export from the billing system and payment processor, reconcile it to bank deposits, and rebuild MRR yourself from subscriptions. Screenshots and spreadsheets prepared by the seller aren't enough.
What churn is acceptable?
It depends on the customer type and price point. More important than any benchmark is the trend and the cohort pattern: are newer cohorts churning faster than older ones?
Can I get an SBA loan to buy a SaaS business?
Possibly. SBA change-of-ownership rules apply, including verified earnings and debt service coverage; lenders may skip a physical site visit for virtual businesses and use alternatives. Lenders look at earnings, so a high-growth, break-even SaaS may be hard to finance with debt.
What IP issues should I check?
That the business owns its code: founders and contractors assigned IP to the company, open-source licences are compatible with how the product is sold, and no third party can claim the code.
Are SaaS companies valued on revenue or profit?
Both are used. Growing companies with strong retention are often discussed on ARR; smaller or slower-growing ones increasingly on SDE or EBITDA. Convert any revenue multiple to an earnings multiple to sanity-check it.
What is net revenue retention?
Revenue from a group of customers this year as a percentage of what the same customers paid last year, including expansion and churn. Above 100% means existing customers grow on average.
Sources
- SBA SOP 50 10 8.1, Appendix 15 (site visit alternatives for virtual businesses; QoE revenue sustainability)
- IRS: About Form 1099-K (processor reporting)
Related guides
General information, not legal, tax, financial or investment advice. Rules and lender practices change; check the linked sources and talk to your attorney, CPA and lender about your deal. Examples with named numbers are illustrations, not real businesses. OKtoBuy's Deal Check does not value businesses or give price opinions.