The Stakes: Why Valuation Preparation Matters

Reed opened with a stark reality: for most MSP owners, the business represents the single largest asset in their retirement portfolio. Yet many go 20 years without deeply understanding what drives value, only to sell under less-than-optimal terms.

Meanwhile, today’s market dynamics create both opportunity and complexity. Private equity interest in MSPs is surging as capital moves from unstable public markets to recurring-revenue businesses. Some buyers are highly experienced “serial acquirers” who know how to extract value; others are first-time entrants who may overpay but lack integration know-how. Choosing the right buyer—one who can execute a post-transaction growth strategy—can make or break the second bite at the apple that sellers often rely on for long-term wealth

Key Value Drivers Every MSP Must Track

While EBITDA remains a cornerstone of valuation, Reed and Larry emphasized that operational and financial clarity drive higher multiples. Several critical areas stood out:

1. Profitability by Revenue Stream

Break out services such as managed services, product sales, and hosting, then measure gross margin by stream. Without this, you’re “operating blind” about where profit is truly generated

MSPCFO Clients: Use the Client P&L to see labor and product margins. Use the Contribution by Product to see the breakdown of product margins. Use the Project P&L to see project margins.

2. Profitability by Client or Contract

Knowing the consumption of services per client allows MSPs to spot underpriced or over-serviced relationships. MSPCFO data shows that fixing the bottom five clients alone can boost managed services revenue by ~8%.

MSPCFO Clients: Start with the FFA Monthly Tracking report to find your bottom five clients. Dig into each of them using the Agreement Specifics dashboard.

3. Labor Efficiency Ratios

Beyond simple utilization rates, labor efficiency metrics reveal how effectively direct and management labor generate gross margin. They help answer whether you’re overpaying or if untapped capacity exists without staff cuts.

MSPCFO Clients: Use the Members > Utilization report to see how much capacity each member has or Members > Billing by Month to see where time is being spent, and the value of that time.

4. Pricing Discipline and Value Proposition

Pricing is both art and science. Successful MSPs consistently validate that they deliver greater value than competitors at their rates—whether through service quality, specialization, or measurable outcomes.

MSPCFO Clients: Use the Agreement Drilldown Report under Efficiencies and sort the data by Revenue/Node to see clients who may be underpriced compared to your portfolio of clients.

These metrics not only drive daily decision-making but also signal to sophisticated buyers that the business is well-managed and scalable.

The Human Side of Selling

Numbers tell only half the story. Reed stressed the emotional and identity challenges of exiting a business:

• Roughly 70% of sellers experience a last-minute panic, and 80–90% face mild to severe post-sale depression within 6–18 months.
• The sudden loss of daily purpose, team interaction, and external validation can leave even well-compensated sellers feeling adrift.

To mitigate this, owners should start early—three or more years before a sale—and plan not just the financial transaction but the next chapter of their lives. As Reed put it, “Selling your business should be an enabler of your next stage, not an end in itself.”

Practical Steps to Build Value Now

Whether a sale is imminent or years away, MSPs can take concrete actions to enhance valuation:

• Address the “Dirty Dozen”: Review the least profitable clients and either restructure, reprice, or transition them to free up resources for higher-margin opportunities. *
• Invest in Clean Financials: Align operational tools (like PSA systems) with financial statements to ensure accurate, actionable data.
• Consider Partial Liquidity Options: For owners seeking diversification but not ready to exit fully, some buyers (e.g., New Charter, Evergreen) offer structures that allow owners to take cash off the table while retaining operational control and equity.

* MSPCFO Clients: Use the Segments Report to stack rank your clients by one of many metrics, including margin, revenue, or contribution per hour.

A Continuous Journey, Not a One-Time Event

Both Reed and Larry returned to one key theme: start early and stay proactive. Benchmarking profitability, strengthening pricing discipline, and building a culture of measurable value creation are habits that pay dividends whether you plan to sell next year or in ten.

As Larry summed it up, improving these fundamentals “is like planting a tree—the best time to start was years ago. The second-best time is today.”