What’s Involved in Selling Your MSP? Here’s What You Should Know
Even though you may be too busy servicing clients to think about an exit strategy, you should schedule some time out of your day to determine what you want for yourself and your business. If you don’t and eventually decide to sell your MSP, you may end up leaving money on the table.
Selling an MSP doesn’t have to be difficult. If you understand what’s ahead of you, you’ll be in a better position to negotiate a better deal for yourself, your business, and your employees when and if the time is right.
Here’s what you should know when considering selling your MSP.
They want to paint a picture of what your business looks like, so what are your financials?
Initial buyers are going to ask basic questions about your business to try to paint a better picture of what your business looks like. (They’re assessing what they could be in for if they buy your business.) They’re simply trying to answer the following question: Does this business make sense to buy? During this process, you’re going to expose your business, which can be intimidating for many MSPs. Once an NDA is signed, potential buyers will also ask for your financials and dig in deeper.
How much is your MSP worth?
If you don’t know how much your MSP is worth, you’re not alone. There are plenty of MSPs new to the valuation process. Your MSP’s value is essentially based on a multiple of your EBITDA, or earnings before interest, taxes, depreciation, and amortization. Once there’s a letter of intent (LOI), an agreement between you and the potential buyer, you can negotiate your MSP’s valuation, as well as additional terms (e.g., maybe you’d like to exit the business and be paid accordingly). During this stage, the potential buyer will also do some additional due diligence.
Don’t worry about all those write-offs.
We all have ghosts in the closet, don’t worry about it! Even though many MSPs get worried about potential buyers seeing all their write-offs, they shouldn’t be too concerned. Here’s a little-known secret: Write-offs make your bottom line look a lot better. All your write-offs increase the EBITDA value to the organization that is making the acquisition. For example, if someone acquires your company and phases you out after several years, they’re going to need to hire someone to replace you. Some of that money will come from your write-offs. Don’t worry about all that. Do you have some MRR? How long have you been generating that MRR? That’s what they want to know. They’re typically going to request your financials from the last two or three years.
Interviews of customers and management teams.
Without a doubt, buyers are going to do their due diligence before purchasing your company (or at least they should). They’ll want to interview your customers — and for good reason. Are your customers enjoying the services you’re providing, or are they in the middle of looking elsewhere? If many of your customers have plans to switch to your competitors, a potential buyer would be less likely to offer you a deal. Here’s another thing to remember: Potential buyers interview not only your customers but also key members of your management team. Are key members of your management team planning on leaving? If not, would they if you sold the company? Do they feel they’re working in a toxic work environment? If you’re hiding something about your customers or management, potential buyers will eventually find out.
Consider working on an exit strategy.
Even though you may be busy running your business today, at some point in your life, you may want to move on. Unfortunately, developing an exit strategy isn’t a priority for many entrepreneurs. What typically happens is they start a business and work in it until they die or sell it, and when they sell it, they usually don’t receive the kind of money they could’ve if they had just developed and followed an exit strategy. But unlike other types of businesses, MSPs are usually better positioned to sell. For instance, the MSP model is way more attractive to investors than the break-fix support model. MSPs have regular cash flow, generate MRR, and know their costs. When you plan accordingly by having an exit strategy, all of this becomes apparent.
No matter where you are on your entrepreneurial journey, ask yourself the following question: “What does my future look like?” Would you like to sell your business one day? If you would, then start thinking about an exit strategy today. The sooner you do, the better off you’ll be when the time comes.
About MSP Corp
MSP Corp understands you’ve worked hard to build your business and you want to protect it. With a mission to be a world-class business partner for MSP owners across Canada, we actively seek to acquire and partner with owners looking to secure the value of the business they have built and provide a seamless exit process that ensures business continuity and employee and client stability.
Contact us today to learn more about selling your business and maximizing its value.