Running and Selling a Business in the California IT Industry
The IT industry has been booming 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 huge opportunities. One of the places that are happening most is in the California IT industry.
This can mean big business, and it can also be great news if you are a company in the IT industry and looking to sell your business. 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 changed worldwide. The COVID pandemic has forced companies to think of remote work differently, and 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, and these companies are working hard to keep pace.
But it also means companies that offer support for those who work from home, and now do pretty much everything from home, are booming as well. They include things like app development for:
- Exercise at home.
- Health apps, especially those that connect similar groups of people.
- Work sharing apps, like Zoom and Slack, and other smaller players that offer extensions and add-ons.
- Video calling devices similar to Zoom’s own 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 wide and open to a lot of innovation. This means that if you have a thriving company ready to sell, finding buyers is much simpler. It also means if you need to grow your company to be more profitable before you sell, opportunity abounds.
According to First Research, the IT industry has grown 7.3% in 2020, and projections say it will grow even more before 2029, at a rate of 11%. As more technology becomes a vital part of our lives, every part of the sector is experiencing growth. There are several examples:
- Autonomous vehicles require extreme AI.
- High-speed internet even in rural areas, and faster and 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, group sharing on a large scale through video chat, and other developments mentioned above also provide both opportunities and challenges that are driving 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 who did business internationally, this was just the first step. Next came the California Consumer Privacy Act.
The way the act is written, not only applies to those companies based in California but 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 of its own, that means it affects nearly every company. Similar to GDPR with some additional protections, the act is good for consumers, but does offer challenges to software and app developers, and 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 governing what defines an employee vs. 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 regulation, and taxation are also different in California. Taxes tend to be higher than in other states. Regulation tends to be stricter in the areas of zoning, employer responsibilities, and others.
But while there are challenges, California is also filled with some great opportunities for IT companies and those who own them.
Unique California IT Industry Opportunities
To start with the opportunities in California, one only has to say two words: Silicon Valley. The proximity to some of the highest-profile tech companies and startups in the world 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 that has developed as a result of COVID, but there are still big plusses to being physically close to some of the best talent the world has to offer.
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 own backyard. For IT companies, that means you have a choice of great employees to choose from starting with young college graduates easy 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 due to the great climate, the lifestyle, and the variety of activities available. Your company can hire the best and the brightest no matter what their background without even looking beyond those in the state itself.
There are a lot of advantages to running an IT business in California, and 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, 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 a variety of reasons for this, including the above-mentioned lifestyle, the colleges and schools, and the opportunities that come as a result.
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 happens here are unlikely to slow any time 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 going forward. 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 looking for companies that make due diligence easy, and they often are your buyer if you have an IT business.
- Have an exit plan early. You should run your business like you plan to sell it tomorrow even if your plan to sell is a few years off.
Do you have questions about selling your IT business? Do you wonder if you are ready to sell now, or should wait? The place to start is with a business valuation. You can’t sell a business until you know what it is worth, and many companies have independent valuations done on a regular basis to document growth. We can help with a business valuation, and that’s the best place to start.
Then when you are ready to sell, we can help you through every step of that process from getting your business ready for due diligence to securely exchanging information with your potential buyer to the final escrow and closing process. Give us a call or contact us today! We’d love to help you sell your IT business as soon as you are ready.