As an MSP owner or manager, regardless of whether you are currently planning an eventual exit, you should always be looking at ways to improve the business, processes, and add value to your MSP where you can. In my MSP.blog, I advise MSP owners to ‘build, with the end in mind’ – Whether that’s a growth goal, exit plan or a milestone…So, what does a good outcome look like for you?
First, add value to your MSP
For many MSPs, an exit at some point in the future is the dream, and for others owning an MSP that can operate without them in the business is the dream. Both goals are fine, but you should always be thinking along the lines of ‘How can I increase the value of my MSP?’
Personal circumstances, climates, industries, competition, and goals can change over time, and you want to ensure you’re able to gain as much value out of your business as possible when the time comes.
If you don’t come to exit, don’t worry – all the effort you put towards an exit plan and adding value to your MSP will make your business a better environment for staff, improve processes, removes you from the day-to-day firefighting which all leads to happy customers (and better growth).
Create successful business outcomes
There are many areas of a business that can be worked on to add value, but below are the key areas we have seen work for MSPs in terms of creating successful business outcomes:
A strong tech stack not only add value to your MSP, but it will increase the interest from potential bidders when you go to market. Buyers see a strong tech stack as an asset that demonstrates a well-run business, and in a lot of cases, the tech stack, or parts of it, then get used within the buyer’s business.
As stated in the famous business book ‘The E-myth: Why Most Businesses Don’t Work’ by Michael E. Gerber, you need to be in a position that you’re working ON the business and NOT in it. There should be a team around you that can operate when you’re not around – this is a key area that potential buyers will be looking for.
When reviewing a deal, potential buyers review risks and how they can mitigate those risks. One of the main risks to a potential buyer is having too much of the revenue sitting with one, or a small number of clients. This means that if this client(s) moves on, much of the revenue is lost. If you have a lot of your revenue sitting within a small number of customers, you need to work to dilute this across your business otherwise this will be factored into the deal and will negatively affect the value.
Recurring revenue is king
One of the main areas investors look for within an MSP business is fixed monthly recurring revenue (MRR). Aim to get as much business as possible onto MRR contracts, often buyers looking for a true MSP won’t be interested if MRR is below 30-50 percent of your total revenue.
Length of customer contracts
Buyers and investors put a lot a value on long term contracts as it guarantees a level of return, so you should focus on ensuring your customers are in 24-to-36-month contracts.
Team (tech, sales, and management) and staff retention
A strong management team around you, happy staff and high retention levels will all help when going through the M&A process.
Documentation and processes
Key to any business, document and processes are even more important if you are looking to exit. Having these in place will allow potential buyers to understand your business, what’s involved and more importantly provide them with a road map for how to run systems once they take over.
A great way to show the market that you are well run, follow processes and externally audited is to achieve industry standards and accreditations. Some of particular note include ISO 9001 Quality, ISO 27001 Information Security, Cyber Essentials, Microsoft Partner, and other vendor accreditations.
Strategic growth opportunities – USP or niche
Having a unique selling proposition (USP) or a special niche can increase interest from strategic buyers and increase offers. For example, being the primary MSP for a certain area or an industry could be attractive to a competitor wanting to get into that space as acquisition of your company could provide them with an easier route to market.
Having a strong and healthy pipeline shows potential buyers that there are growth opportunities within the business and often supports the valuation of the company.
Having clean, up to date and well documented accounts is a must – any holes here and the buyer will potentially reduce the value of your company and the amount they are willing to pay.
Everyone wants happy customers. Find ways to externally show you have raving fans by running CSTAT surveys and have up to date case studies and testimonials.
Want to learn more?
Want to learn more about adding value to your MSP, funding, or planning an exit?
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