Most owners value their business once. It happens at the end, usually under time pressure, and the first draft of the number is a surprise. Then come the adjustments, and one line in the accounts gets more attention than it ever did while you were running the place.
The software bill.
You have read it as a monthly cost for years. A buyer reads it as a permanent commitment and prices it accordingly.
A recurring cost is worth a multiple of itself
Businesses are valued off earnings. Every pound of recurring cost that comes out of earnings is a pound that no longer gets multiplied. So £30,000 a year of licence fees does not knock £30,000 off your price. It knocks off £30,000 times the multiple.
| Annual software spend | At 5x | At 6x | At 8x |
|---|---|---|---|
| £10,000 | £50,000 | £60,000 | £80,000 |
| £30,000 | £150,000 | £180,000 | £240,000 |
| £60,000 | £300,000 | £360,000 | £480,000 |
| £120,000 | £600,000 | £720,000 | £960,000 |
Those multiples are illustrative, and your buyer will use whatever their own model says. The direction is not in doubt. Take a business on £400,000 of earnings with a £30,000 software bill. At six times, it is worth £2.4m. Remove £27,000 of that bill because the licence is gone and only hosting remains, and the same business is worth £2.56m. Nothing about the operation changed. Only the line that ends.
Rises matter as much as the current bill
A buyer does not buy this year. They buy the next five, and they will ask what stops the price moving. If your bill has been rising 12 per cent a year, £30,000 becomes £37,632 by year three and £47,206 by year five. Capitalised at six times, the third year figure alone carries about £226,000 of enterprise value.
Nothing needs to be true about your particular supplier for this to apply. It applies because the buyer has to assume the cost continues, and contractual protection against increases is rarer than owners expect.
What diligence will actually ask
Have the documents ready before anyone asks. The questions are predictable:
- What is the contract term, the notice period and the renewal mechanism?
- What does the price rise clause permit, and when does it bite?
- Does the contract survive a change of control, or does the buyer have to renegotiate on day one?
- Can the data be exported in a usable format, and at what cost and lead time?
- Who owns the customisations, integrations and workflows built on top of the product?
- How many seats are paid for, and how many are used?
Each of those becomes a warranty, an indemnity or a price chip. The seat count question catches people out regularly. Twenty paid seats and eleven active users reads as either waste or a growth plan, and the buyer will assume waste.
What changes when you own the code
The licence line disappears from the model. Hosting does not. A mid-sized business application typically runs on somewhere between £100 and £500 a month of infrastructure, plus backups, monitoring and the occasional change. So you are not claiming zero. You are claiming £3,600 a year instead of £30,000.
You also stop renting the right to continue. Nobody can reprice your operations, retire the module you depend on, or move you onto a tier because the old one is being discontinued. In a sale, the software transfers as an asset in the bundle rather than as a contract the buyer inherits and has to live with.
The discount you should expect anyway
Owned software with one person who understands it is a liability in diligence. Buyers call it key person risk and they price it. If the source code is undocumented, the deployment is a folder on someone's laptop, and the only developer has moved on, expect a discount that could exceed the subscription you saved.
So the ownership argument only lands if the handover is real. Written documentation. Source code access. A defined period where the original developer is available. A stack a normal developer can pick up. That is what makes an asset an asset rather than a promise.
One more honest point. Some buyers actively prefer renting. A business running on a well known platform needs no technical knowledge to operate, and an acquirer with no engineering capacity will pay for that simplicity. If your plan is to sell within two years to a buyer like that, owning may not help you. Run the sum against your own buyer, not against the idea of one.
Do this before you list
Add up every subscription in the business, not just the two that annoy you. Software, hosting, licences per seat, support retainers, add-on modules. That total, multiplied by a defensible multiple, is roughly what the market is charging you for the privilege of renting.
Then decide which parts of it you would rather stop paying, and what a credible owner of those parts would look like. Not everything qualifies. But more of it does than most owners assume, and the number is easier to face now than in a diligence call.
Put your own numbers in
Compare the cost of renting your software with a fixed-price route to ownership.
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