By Barb Paluskiewicz, CEO, CDN Technologies
The difference between being the owner of a business or being self employed is at the end of the day when you consider exiting or selling your business, how does the business transition without you? As you grow your IT business, the way you make operational decisions to increase the equity of your business is very important. It will determine if you have established your MSP as a lifestyle business or a scalable enterprise. The majority of MSP owners have been involved in IT for so many years and have spent their time being self employed and unfortunately they don’t have anything to sell to be able to retire. Luckily there are many tech integrations and vendor relationships that can be leveraged to automate or semi automate your MSP to increase its value, so you can go from being self employed to having your MSP business be the single largest asset so when you sell it you can retire comfortably.
How do you create equity in your MSP business?
Short answer: The less reliant the business is on you the more valuable your MSP business is.
Let’s look at an example to make the point. Jeff owns a MSP and spends most of his time doing tech work, having the odd lunch with a customer, and then in the evenings does his administrative work for the business. He does most of this work alone and without a team, maybe his spouse, child or parent helps him out every once in a while. Sounds simple enough, however Jeff’s mindset is that he enjoys what he does, likes the clients he works for, and makes a decent living. Nice Eh? But there is a problem.
The problem is that Jeff is not spending any time implementing who would be doing his ‘job’ at his company in his absence. While it is true that the company can run for a week if Jeff gets sick and it would not affect Jeff’s income, but what if Jeff wants to go on a European Family Vacation? Or becomes terminally ill? Jeff is not protecting the equity in his company with his decision-making process. Jeff’s retirement future is at risk because there is no equity in his business. He has not focused on his business as an investment and the business has NOT been treated as a separate distinct entity. Jeff is self employed and at the end of the day when Jeff considers retiring and selling his business, he is just selling his job. The difference between being self employed and having a business is when you exit your business, will the buyer be purchasing a job from you or an enterprise?
If you are self employed and have a lifestyle MSP how do you build your business and establish equity?
Short answer: Your business must be a money making machine without you
There comes a point in time, where the focus must transition from being self employed to building a business. For some, their MSP business is their single largest asset so when they sell, it will enable them to retire comfortably. It’s all about establishing equity in your business. Instead of being focused on tech work, you need to be focused on leveraging yourself and getting the right people, tech integrations and vendors in place so you can relieve yourself of simple tech and administrative tasks. You must make the decision to work ON the business instead of IN the business as you make operational choices. This is easier said than done but at the end of the day you gotta LET IT GO!
As a one-man band IT Company, when you leverage vendor relationships, that align with your IT acumen you can pass on the grunt work of IT to your vendor’s team and confidently oversee work and projects while freeing up time to focus on your business. Channel only vendors are committed and devoted to you. Your success is their success. Have a sales objection? stuck and confused? Get the vendor in on that action, because your problems are their problems and vendors are in the solution business. Guaranteed they’ve seen it before and can assist you with your approach, processes, workflow and sales.
In your business, are there infrastructures and systems in place to allow the business to scale? You need to ask yourself, “How can my business run without me?” When the scope is clear, there are so many tools and applications available to help you automate your MSP – just go to any channel event. Next you need to hire people and your spouse does not count as a hired employee.
The business must have practices and procedures that allow actions to reoccur without having you the owner directly involved in everything. When you begin to make changes in your own behaviour in how your business is run, you start to build on the equity of your business because you are treating your business more like an investment and less like a job. You begin to create transferable value upon selling because your roll changes to keeping watch of tech tasks, book keeping, marketing, etc. You are no longer the doer of those activities within your business. Keep this practice up, and over time your presence will no longer be critical, and any future buyer will see that you developed and secured an ongoing income stream. The equity of the business now increases because the buyer has a higher certainty they will achieve future cash flows without you. The continuation of cash flow is what creates value and excites the mind of a purchaser and opens their wallets.
The only guarantees in life are death and taxes.
Moving into retirement can be difficult and it can be more difficult if you have to give up something that you have worked at every day for years and years.
Our growth strategy at CDNTechnologies.com is through acquisitions. We have had the opportunity to meet with other MSP’s and we have seen first hand the difficulty they have letting go of what they built.
If you feel that taking this step may be difficult for you, one transition strategy that you may want to think about is to create a role for yourself within the buyer’s company. You have the experience and the expertise to offer value to the purchaser so perhaps you can ease into retirement by trying semi- retirement first and working as a consultant with diminishing hours as you head towards the next chapter of your life. There are always options, so be creative and think about what will make things manageable for you.
I hope that sharing some of these thoughts around growing equity and the selling of your business has been helpful. Remember, this article is for information purposes only and should not be considered advice in any way. Be sure to check with professionals before you make any financial decisions about your future and the future of your business. If you are ever looking for a purchaser who truly understands the transition you are about to experience, keep CDNTechnologies.com in mind.
About The Author:
Barbara Paluszkiewicz is the CEO of CDN Technologies, and author of “IT Scams, How To Avoid Being Ripped Off.” For over 20 years, Barbara has shared her IT knowledge and is a sought after speaker and media personality for her expertise.