A managed services firm may differ widely from other businesses, but when it comes time for an owner or investor to sell, everyone wants the best deal. Unfortunately, some find out the value of their organization is not what they’d hoped and end up compromising on the price or other critical factors. For example, potential buyers may ask the founder to stay or remain longer than anticipated or include additional assets in the deal. Those unexpected concessions can put a crimp in retirement or other business plans.
Determining the value and then putting an actual price tag on an organization you spent years creating and developing can be difficult for an owner, no matter how caring and committed you are to the company. There’s no place on the financial forms for recording sweat equity and passion.
The good news is MSPs can make changes to affect the value of their business positively – and some of the benefits of those enhancements kick in almost instantaneously. Here are a few proven and uncomplicated options to effectively boost an IT services business’ selling price:
- Focus on recurring revenue. One sure way to boost cash flow and increase value is by converting prospective one-time projects and hardware sales to “as a service” opportunities whenever possible. The math is simple: increasing the number of cloud sales raises MRR. The incremental income providers receive from virtual technologies provides a steady stream of funds to fuel growth plans, pay utilities and other bills and hire more of the right people. Digital transformations also tend to reduce support requirements, so MSPs can redeploy their most vital resources to maximize customer service and drive even more revenue.
- Solidify and strengthen contracts. Prospective buyers and investors scrutinize managed services agreements to determine the MSP’s true financial outlook. Contracts minimize risk. Effectively crafted, contracts spell out the deliverables for each side and penalties for potential failures, defining the relationship, rules, and payment timelines and processes. Providers should sit down periodically with their accounting and legal teams to evaluate the strength of these documents – specifically around liability, length of contracts and collections. MSPs can implement those changes in new client contracts and renewals to boost their company’s long-term income potential (and value).
- Expand portfolios. It’s no secret that closing larger deals with existing and prospective customers is the most effective way to boost revenue. Adding incremental and complementary solution options to sales proposals creates awareness – MSPs get an opportunity to educate their clients on the benefits of those extras. For example, including a UCaaS platform as part of all new and renewing contracts is a sure way to spur conversations on the business advantages of a collaborative communications solution.
- Optimize cash flow. Evaluating and enhancing billing and collections processes can further strengthen an MSP’s valuation. Without constant attention, even the most successful providers can run into cash flow issues, especially if onboarding multiple new clients in a short amount of time. Strengthening collections policies and procedures convert more monthly recurring revenues into cash and boosts one of the most critical numbers for buyers and investors: cash flow. Improving that metric correspondingly increases the company’s valuation and outside interests.
- Invest in employees. Potential stakeholders look for companies with growth potential and stability. MSPs with positive HR plans and active training and retention programs typically draw more attention than unstructured firms with haphazard personnel policies. Structure reduces investor risk. Many buyers look for assurances that key staff will remain with the organization following a transition and may pay less without those guarantees.
- Boost customer satisfaction and client retention. Customer retention is another essential element of commerce. As trusted business advisors, MSPs hold more power than they realize, with many clients’ decision-makers looking for that sound advice. Most providers could benefit from greater interaction. For example, by implementing customer satisfaction scoring applications, you can more readily identify potential problems, make adjustments, upsell on new services and share the results of those surveys with potential investors.
Alter Your Attitude
The most profitable MSPs are extremely proactive in meeting clients’ needs, architecting effective data and network protection and transitioning to an “as a service” model to support remote and hybrid workforces. The types of support they offer are tailored to address each business’ desires and requirements. One of the biggest questions for MSPs is now, “what other support do those clients need?”
That evaluation process might force IT entrepreneurs to think outside their traditional comfort zone, like replacing standard phone and VoIP systems with a comprehensive communications platform. Delivering virtual meetings (think Zoom or Teams) or ongoing training sessions for sales and marketing activities may require new resources and people.
Successful MSPs tap into their collective resources to expand their “as a service” portfolios, encouraging team members and partners to share ideas and provide feedback on potential new options. The best way to quickly and easily generate additional revenue streams is to build from what you do best. Listen closely to what employees and customers say and get creative − it’s a low-cost proposition with a high upside!