The IT industry has been experiencing significant growth for quite some time. From robots that flip burgers and giant ones that kneel, stand, and walk to your local data center, the future of 5G, and the “work from anywhere” revolution. Internet technology, the Internet of Things, and big data all offer tremendous opportunities. One of the places where that is happening most is in the California IT industry.
This can mean big business, and it can also be great news for companies in the IT industry looking to sell their products or services. So, what does running and selling a business look like in the California IT industry? Here are some clues.
Recent Changes in the IT Industry
First, the IT industry has undergone significant changes worldwide. The COVID-19 pandemic has forced companies to rethink remote work. More people have adopted the work-from-anywhere philosophy. This means data centers and other server locations in residential and other areas have had to step up their game. Changes came fast and furious last March. These companies are working hard to keep pace.
However, it also means that companies offering support for those who work from home, and now do nearly everything from home, are also booming. They include things like app development for:
- Exercise at home.
- Health apps, especially those that connect similar groups of people.
- Work-sharing apps, such as Zoom and Slack, as well as other smaller players that offer extensions and add-ons.
- Video calling devices similar to Zoom’s hardware and Facebook Portal.
- Food delivery and ordering apps.
- Healthy cooking and recipe apps.
- Family activity apps.
- Finally, the less fun but necessary contact tracing apps.
The industry is vast and open to numerous innovations. This means that if you have a thriving company ready to sell, finding buyers is much simpler. It also means that if you need to grow your company to increase its profitability before you sell, opportunities abound.
The Forecast
According to First Research, the IT industry experienced a 7.3% growth rate in 2020, up from 11% in 2019. As more technology becomes an integral part of our lives, every aspect of the sector is experiencing growth. There are several examples:
- Autonomous vehicles require extreme AI.
- High-speed internet, even in rural areas, and faster, more extensive cellular networks.
- The gathering and analysis of big data.
- The shift to a “work from anywhere” environment.
The development of health-related apps, large-scale group sharing through video chat, and other developments mentioned above also provide both opportunities and challenges that drive growth.
One of those drivers is consumer privacy and security.
Unique California Challenges
Last year, the passage of GDPR had websites and companies that did business in Europe scrambling to meet new, stricter requirements for storing, protecting, and using customer data. For companies that did business internationally, this was just the first step. Next came the California Consumer Privacy Act.
The way the act is written applies not only to those companies based in California but also to any company that does business with residents of California. Since the California economy would be the sixth-largest in the world if it were a country, it would be the sixth-largest in the world. That means it affects nearly every company. Similar to the GDPR, with some additional protections, the act is beneficial for consumers. However, it does present challenges to software and app developers, as well as those who build e-commerce websites or offer software as a service with a subscription model.
Another California challenge is AB-5, the new law that defines what constitutes an employee versus an independent contractor. Since many app designers and web developers work as independent contractors rather than employees or on short-term contracts, this means that California companies must re-evaluate these relationships. This impacts contractors who live outside of California but do business with companies located in the state.
There are other factors. Licensing, environmental regulations, and taxation also differ in California. Taxes tend to be higher than in other states. Regulation tends to be stricter in areas such as zoning and employer responsibilities, among others.
However, while there are challenges, California is also filled with numerous great opportunities for IT companies and their owners.
Unique California IT Industry Opportunities
To start with, the opportunities in California are exemplified by one word: Silicon Valley. The proximity to some of the world’s highest-profile tech companies and startups makes owning an IT business in California highly desirable and profitable. From Apple to Facebook and others, California is the place to be.
This is shifting with the remote work from anywhere mentality. It has developed as a result of COVID, but there are still significant advantages to being physically close to some of the world’s best talent.
And that’s the other factor. California has some of the best universities in the world, training the programmers and IT professionals of the future in our backyard. For IT companies, that means you have a choice of great employees to choose from. Starting with young college graduates eager to make a difference, to seasoned pros.
California is also a diverse state. People come from all over the United States and the world to settle in California. They are attracted by the excellent climate, the lifestyle, and the variety of activities available. Your company can hire the best and brightest, regardless of their background. All without even looking beyond those in the state itself.
There are many advantages to running an IT business in California. If you are ready to sell your business, you can use those factors to entice the right Buyer at the right time.
The Future of the California IT Industry and the Timing of Selling Your Business
The California economy is an interesting one. There is constant talk of change, and people moving away to other parts of the country. Yet construction, new home starts, and other factors show that people are moving to and staying in California. There are several reasons for this. In addition to the lifestyle mentioned above, the colleges and schools, and the opportunities that come with them.
The future of IT in California is even stronger as a result. Green energy initiatives, the multiple industries that IT supports in the state, and the increasing development and innovation that happen here are unlikely to slow down anytime soon.
What does that mean for selling your IT business? Buyers are eager to invest in companies that are profitable and future-proof. Or likely to make money in the future. What does that mean when it comes to preparing your business to sell?
- Be profitable, or become profitable before you sell.
- Be up to date. Be a part of things that are trending.
- Innovate and plan for tomorrow. Don’t just dream, document those plans.
- Get your financial house in order. Private equity groups and others are seeking companies that make due diligence easy, and they are often your potential buyers if you have an IT business.
- Have an exit plan early. You should run your business as if you plan to sell it tomorrow, even if your plan to sell is a few years away.
Do you have questions about selling your IT business? Do you wonder if you are ready to sell now, or should you wait? The place to start is with a business valuation. You can’t sell a business until you know its worth. Many companies have independent valuations done regularly to document growth. We can assist with a business valuation, which is the best place to start.
Then, when you’re ready to sell, we can guide you through each step of the process. From getting your business prepared for due diligence to securely exchanging information with your potential Buyer, to the final escrow and closing process. Contact us today! We’d be delighted to help you sell your IT business as soon as you’re ready.
