What is the most common reason MSP owners want to sell their MSP? After, let’s say, 20 years of running a company, what would make an MSP owner decide to sell the company? Could it be burnout? Could it be the desire to move to something else? When does it make sense to sell and what needs would selling the MSP fulfil? We had a chance to talk to acquisition and merging expert and get answers to all of these questions and more!
What are the most common reasons for selling an MSP? There are many reasons MSP owners might want to sell their MSPs. Some of the most common, listed by frequency are:
- Burnout
- Health
- Retirenment
- Another business
- Partner dispute
- Discovery
- Coaching
If you see yourself considering selling your MSP or simply want to know what would it take to do so, you’re in the right place! It’s okay to simply dip your toes and check the water. For that reason, we’ve talked to Hartland Ross from The MSP Broker and brought you all the insights so you can take more control of the process.
Most common reasons MSP owners sell their MSPs explained
- Burnout – Probably the most common reason why MSP owners sell their MSPs! This is not tied to age as well. It can happen to anyone, whether they are in their 30’s or 40’s. Certainly, after 50, people are checking that box off. In some cases, we’ve seen that people are exhausted and know what it takes to sell the company so they reach out to an agency for help.
- Health – Related to the owner’s health usually, related to the family members’ health sometimes, but always a great challenge to overcome. An agency steps in to help with the sale so everything is n order and done in a timely matter.
- Retirement – As baby boomers age, we’re seeing a few more people reaching the point where they’ve fulfilled their business objectives and simply want to relax and enjoy the fruits of their hard-earned labour.
- Another business – There are cases where people started a new company or even got a day job. For these reasons, they were unable to balance work and keep up with results on both sides. Some left their jobs and others sold their business to focus on their day job.
- Partner dispute – There doesn’t have to be drama involved, sometimes the partner simply wants out so they can be able focus on a new venture. If that partner is a tech lead, the partner left is usually in sales and operations, and they are left need to replace the missing half. If they are unable to or don’t want to – the other solution to ponder is selling the MSP.
- Discovery – Sometimes conversation about selling an MSP can start way before even considering selling. MPS owners can be motivated to think about selling their MSP as part of looking at the future of both their careers and personal life. Making an informed decision about their MSPs, especially when it comes to selling them, can benefit them greatly. What is involved in this process, what would the owner need to do before, and what might be the expected result – these are only some of the questions that should be raised before selling an MSP. Owners can talk to their accountant, and have them get everything they need if they want to retire let’s say, 2,3 years in the future or more.
- Coaching – Getting advice and coaching on how to successfully sell or merge their MSP can benefit owners a lot. This kind of conversation with an expert can also be valuable when assessing the state of the MSP – identifying pain points and ways to improve them.
How long does it take to sell an MSP?
The time needed to sell an MSP varies wildly! It can take anywhere between 2 or 3 hours to 2 or 3 years! Depending on the urgency and the amount and complexity of things needed to be straightened out before the sale.
Not everybody who engages with an agency is ready to pull the trigger at the time. In those cases, the conversation is centred around the things they need to do to prepare.
Some of these things, in contrast, can be done in a matter of hours with the right dedication to clean things up and move forward with the process swiftly.
In other cases, the sale can take time since it is more structural.
There are instances where time is simply not on their side and the owners want to move forward with the business as is.
What are the most important steps to selling an MSP?
Most important steps MSP owners should take when selling their MSP are:
- Clean up your financials
- Sign contracts with buyers
- Remove yourself as an owner
In the ideal scenario, these aspects would all be solved before selling the MSP. However, if there is not enough time, the most important thing would be to clean up your financials as an MSP owner before selling the company. This can affect the value and the smooth transition between owners of the MSP.
This is generally a good practice whether or not you are looking to immediately sell or simply planning for the future.
Best practices in selling an MSP
What does somebody need to do to sell their MSP? What is the lead-up to getting to a point right before closing the deal? What do owners need to sort out, what do they have to show and what do they need to consider on that journey overall?
The best practice, that any M&A advisor will tell MSP owners is to clean up with your financials! There isn’t much pushback with the clients but it is a better practice than not since it comes up consistently, I to remove personal expenses. It is standard practice for those who want to reduce tax liability. This includes – cars, travel, entertainment, health benefits (for their extended family as well in some cases) and other related expenses. Crazy things have been marked as personal expenses such as home renovation which make a significant financial statement. Removing those or compartmentalizing them so they can be easily identified and removed makes all the difference in the eyes of the buyer.
Categorization is another good practice – define and categorize everything so that the buyer won’t ask questions like “what is “miscellaneous” or “uncategorized”, why is your cost for security and backup greater than the revenue for security and backup – the answer is that there might be some other items left in there. It is best for the owner of the MSP (the seller) to clean those up and get the categorization properly aligned and know what is in those categorizations as well. MSP owners who are considering selling their MSP should talk to their accountant, talk to their bookkeeper and understand how to discuss and defend the way their financials are laid out.
Some other requirements that are more involved and are harder include getting the buyer to sign contracts, ideally, an auto-renewing kind of contract, that is renewed annually and those that can not be cancelled before the end of the term (at least not without paying out the term). so that one takes time to negotiate with the customers, especially if the customers are not used to contracts. Usually, for that reason, it is good to provide some kind of incentive and rationale to defend those contracts.
Remove yourself as an owner as much as you can from day-to-day operations, especially from client interactions. It is usual for owners to communicate with customers, especially larger clients and especially the “legacy ones” the companies they signed up for 5 or 10 years ago. Not necessarily cut the communication entirely, but the owner should not be involved in it on regular basis. Instead is good to steer that communication back to the MSP team. By being the link between the clients and the team, the MSP owners help build trust with the clients.
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