While at Autotask’s recently held Community Live! conference in Miami, I sat in on a very interesting session run by Bruce Teichman, VP and partner of Cogent Growth Partners. The breakout concentrated on the topic of selling one’s business — the steps to take, how much money to expect, and when to start the process. Here’s a quick run-through of Teichman’s tips for how to run your business that will make it appealing to buyers. What I found most interesting was that Teichman’s advice was equally valuable to a VAR or MSP that isn’t interested in selling.
- Use efficient, transferrable systems, tools, and processes in your business. Teichman says that automation drives efficiency, something leading MSPs know very well.
- Maintain a lean staff that can be well compensated. Teichman says you’re better off running lean (no more than 10 percent overstaffed), but paying your employees well. This will ensure you’re not overstaffed (being inefficient), while maintaining (hopefully) happy employees.
- All staff members should sign non-competes/non-solicit agreements. Check your state laws.
- Implement multiple income streams (but not too many)
- Grow your client base with the right clients. That is, you want diverse, predictable (they leverage tech, they are growing, and listen), and contracted customers
- Have defensible differentiation. Everyone can claim to care more than their competition or to have better people. Ask what you truly do better than others. If you don’t have a differentiator, find one or make one.
- Cull unprofitable clients with high-touch requirements. While doing so, be sure to right-size your staff accordingly. Total revenue will drop, but profit will increase. To cull, you need to be able to measure profitability by client. Use hard or soft metrics, but do it.
- Don’t have all your eggs in one basket. Teichman says buyers don’t want to see clients that make up more than 10 percent of your annual revenue. In fact, 2 percent to 5 percent is ideal. If you have clients that make up more than 10 percent of your revenue, make it your mission to find more customers to drive this percentage down.
- Build contractual relationships with as many clients as possible. Having 60 percent to 80 percent of clients on contract is preferable. Multi-year agreements (without easy outs) add value. Teichman says some MSPs balk at the idea of imposing tough cancellation policies. His idea, allow easy outs for the first 90 days of a contract. The goal of this is to keep customers around. Of course, you’ve got to do a good job to ensure this. Retention is a huge factor in a company’s success since it’s much cheaper to retain vs. selling new customers. Lots of turnover can compound and make it impossible for a solutions provider to grow.
- Parse your revenue and corresponding expenses into granular buckets on your books. When you understand your margin by revenue stream, you can better manage the business. Additionally, if/when it’s time to sell, any suitor would be able to better understand your business more readily.
- Finally, minimize your business’ reliance on the owner. Teichman says that a “business” runs with or without the owner, otherwise, you’re a “consultancy.”
Doing all these things will make you more attractive to a potential buyer. However, note that your business will be more attractive because it’s running so efficiently and profitably. At that point, you might want to ask whether you’re better off keeping such a money-making machine.