GETTING READY TO EXIT YOUR BUSINESS? Experts say advance preparation is key to obtaining the best price possible. How far in advance? “Best practice for entrepreneurs is to have an idea of what you want to do with your business the day you started it,” says Bob Dale, partner at Austin Dale Group, an M&A advisory firm for SMB tech businesses. “Almost nobody does that.”
Indeed, research from UBS Wealth Management Americas, conducted in 2018, found that 48% of surveyed business owners have no formal exit strategy in place, and 75% of owners planning to sell believe they could do so in a year or less.
Dale says MSPs in particular are often “accidental entrepreneurs. The business kind of grew up around them, because they were really good at what they did.” So when issues like retirement, divorce, illness, or just plain burnout arise, there is no exit plan in place, he says.
Given that reality, Dale and other M&A experts say a good rule of thumb is to start planning three to five years in advance of selling your MSP business, implementing some long-term, medium-term, and short-term steps that will increase the value of your company and boost your sale price.
The Long View (Three to Five Years Out)
If you’ve made the decision to sell three to five years out, now’s the time to assess the value of your business and see if it meets your financial goals, says Amy Babinchak, an MSP herself and co-owner of SellMyMSP, a listing service for buying and selling IT services companies. Three common valuation methods are earnings valuation, revenue valuation, and gross profit valuation.
Take a good, hard look at your valuation, Babinchak suggests, and then ask yourself how you feel about that number. Does it meet your needs and expectations? “If it doesn't, you've got time to change that and add more value to your business,” she notes.