How to sell your MSP for a tidy sum

IT Support Marketing's Paul Green discusses how owners can sell their MSPs for more than the standard industry valuation - and what makes some MSPs unsellable

I meet dozens of MSP owners every month, and most fall into one of three camps.

There are the ones who are within the first few years of starting or acquiring their first business. They're full of enthusiasm and excitement at finally being their own boss.

Business owners who've been doing it for 10 years or more are normally enjoying the spoils of years of hard work. We're talking big Audis and Mercedes here.

Then there are the business owners who have been doing this for many years and are actively looking at what the end game will be. They want out. It may be several years till they actually ‘retire', but for many they are already tired or frustrated with their business.

Selling a business can be a difficult and painful journey (I sold my core business, a specialist healthcare marketing company, in March last year).

Often it takes twice as long as you expected, and costs far more than you budgeted for. Retirement sales have to be completed before the owner loses interest and lets the business start to deteriorate.

The reality is that successfully selling your business for a good price is less to do with the transaction, and more to do with the work you do in the three to five years leading up to the sale.

Because, despite what your accountant will tell you, selling a business isn't really a financial operation. It's a marketing and sales operation.

Understand this: Your business is really only worth what someone will pay for it. So the more value they see in the business, the better.

The key is to be able to demonstrate three years of growth. Can you show that your sales, turnover and net profit have all enjoyed steady and consistent increases over the long-term? This single factor alone will allow you to break away from the standard industry valuation.

When your business is flat or in decline, the buyer has to weigh up their ability to turn the business around, with the risk that they are buying something that CAN'T be turned around.

There are a couple of factors that you cannot control when selling your business. These include what else is on the market; the price of other businesses; who's buying; and the availability of debt to buy.

But there are several factors you can control - all of which will be uncovered during due diligence and will affect the sale price one way or another.

Does the business need you there to thrive?

It's one thing to be the business owner; and another to have a business that can't operate without you there every second. If you need to be there just for the office to open in the morning it will be less attractive. Businesses that thrive regardless of whether the owner is there or on holiday in Spain are always more valuable.

Have you systemised the business?

This is the most robust way to achieve a business that operates the way you want it to without going mad. You build something called a franchise model for your business (see the classic business book The E-Myth Revisited for the basic lesson on this). Systems give you control and the ability to truly measure staff on their ability to thrive within a clear method of operations.

How strong is your new client marketing and your client relationships?

The business's relationship with its clients is critical. If all of those relationships are tied up in you, the business owner, that's a problem. Demonstrate that you have a series of robust marketing strategies to acquire new clients and retain them.

Can you demonstrate solid cost control?

Businesses that grow turnover but not net profit will sound alarm bells. They show a potential lack of cost control. A fat bloated business full of costs will be worth less than an efficient operation. Most buyers want to know they can start maximising profit from day one of ownership.

Can you demonstrate there is no need for major capital expenditure in the near future?

It's tempting to put off major capital purchases leading up to a sale, but really it should be business as usual. There is a delicate balance to be made between investing in the business pre-sale, and maximising what you will make from the sale.

Paul Green is the founder of IT Support Marketing, a business growth and marketing organisation. He is the author of "Updating servers doesn't grow your business", a free paperback book to help business owners improve marketing and profitability. You can get a free copy posted to you by visiting www.itsupportbook.co.uk