Define Your SaaS Criteria
Write down acquisition criteria before reviewing opportunities. Include the business models you understand, maximum capital at risk, desired owner workload, minimum evidence requirements and deal-breakers. This prevents an attractive story from quietly changing the strategy after you begin browsing.
Use a two-stage screen. First decide whether the opportunity fits the thesis; only then spend time verifying financials, traffic, customers, operations, technology and legal ownership. Record unresolved questions so enthusiasm does not turn assumptions into facts.
Before making an offer, model a base case and a downside case. Include the cost of replacing seller labor, required reinvestment and plausible declines in a concentrated channel or customer. The purchase should still make sense under assumptions you can defend.
Review Arr And Mrr
Define what this step is meant to prove before collecting documents. Good diligence connects a claim to evidence, identifies what remains uncertain and asks whether the issue can materially affect future cash flow or transferability.
Compare the current state with historical patterns. One month or one screenshot rarely tells the full story. Look for trends, exceptions and dependencies, then ask the seller to explain material changes with evidence that can be independently checked where practical.
Record the conclusion and its effect on the deal. Some findings simply confirm the thesis; others change valuation, transition planning or transaction terms. The purpose is a better-informed decision, not paperwork for its own sake.
Study Retention
Look beyond the top-line recurring revenue figure. Review customer cohorts, gross and net retention where relevant, cancellation reasons, contract terms and the share of revenue represented by the largest accounts. A stable average can conceal deteriorating recent cohorts or a single customer whose departure would materially change earnings.
Understand why customers stay. Product necessity, switching costs, integrations, service quality and contract structure can support retention; discounts, founder relationships or neglected alternatives may be less durable. Speak with customers only through an appropriate, seller-approved diligence process.
Connect retention to valuation and operating plans. Weak retention may require more acquisition spend just to stand still, while high concentration can justify additional protections or a more conservative forecast.
Check Concentration
A red flag is a prompt for investigation, not automatically a reason to abandon a transaction. First determine the size of the exposure, how long it has existed, whether it is worsening and what evidence would reduce uncertainty. Concentration in a customer, supplier, traffic source, platform or owner can be manageable when it is understood and priced.
Stress-test the business with a downside case. Ask what happens to cash flow if the largest customer leaves, rankings fall, advertising costs rise, a supplier changes terms or the seller stops performing a key task. This turns a vague concern into an operating and valuation question.
Use the result to shape the transaction. Depending on the facts, a buyer may seek a lower price, transition support, representations, a holdback, seller financing or simply decide the risk sits outside the acquisition thesis. Material legal or financial risks deserve professional review.
Evaluate Product
Define what this step is meant to prove before collecting documents. Good diligence connects a claim to evidence, identifies what remains uncertain and asks whether the issue can materially affect future cash flow or transferability.
Compare the current state with historical patterns. One month or one screenshot rarely tells the full story. Look for trends, exceptions and dependencies, then ask the seller to explain material changes with evidence that can be independently checked where practical.
Record the conclusion and its effect on the deal. Some findings simply confirm the thesis; others change valuation, transition planning or transaction terms. The purpose is a better-informed decision, not paperwork for its own sake.
Review Technology
Create an explicit asset schedule instead of assuming that everything used by the business is included. Domains, repositories, source code, content, trademarks, customer data, analytics properties, ad accounts, email lists, social profiles, supplier relationships, licenses and software subscriptions can have different owners and transfer rules.
Confirm control and transferability before closing. Check registrants, account administrators, contractor agreements and relevant license terms. Where an asset cannot transfer directly, identify the replacement process, cost and downtime risk. Credentials should be transferred through a controlled handover rather than informally shared in advance.
Plan acceptance tests for important assets. After transfer, confirm that domains resolve, applications run, analytics collect data, payment flows work and the buyer has administrative control. The purchase agreement and closing checklist should reflect assets that are genuinely critical to continued operation.
Assess Support
Map the operating rhythm by day, week and month. Identify tasks performed by the owner, employees, contractors, suppliers and software. Ask how exceptions are handled, not only how the standard process works; unusual cases often reveal where undocumented knowledge sits.
Estimate the real replacement workload. An owner may describe a task as only a few hours while relying on years of tacit knowledge, relationships or quick decisions. Document procedures, access, service levels and the cost of replacing work the seller currently performs.
A buyer should know what must remain stable during transition. Critical suppliers, contractors, fulfillment partners and customer-support routines deserve early attention so the first weeks of ownership do not accidentally disrupt revenue.
Value And Negotiate
Valuation begins with a consistent earnings base, not a multiple pulled from a headline. For smaller owner-operated businesses, Seller’s Discretionary Earnings may help show cash flow available to one working owner; EBITDA is more common as businesses become larger and management compensation is treated differently. Normalize the chosen metric before applying any range.
A multiple is shorthand for many underlying judgments. Growth quality, customer and channel concentration, margins, recurring revenue, owner workload, defensibility, documentation and transferability can all affect how buyers view the same dollar of earnings. Comparable transactions are useful context only when the businesses and deal terms are genuinely comparable.
Build a range and test scenarios rather than presenting a single precise answer. Consider the cash paid at closing as well as financing, earnouts, working capital and transition obligations. The economically attractive deal is not always the one with the lowest headline multiple.