When Is The Best Time To Sell Your MSP?

[00:00:00] Welcome to the SMB Community Podcast with hosts, Amy Babin-Check, James Kernan and Karl Palachuk, produced by Kernan Consulting in for the International MSB Community. We are dedicated to making every IT professional a successful IT professional.

[00:00:18] Hey everybody, welcome back to the SMB Community Podcast. This James Kernan with Kernan Consulting and I'm here with again my friend, Amy Babin-Check, Amy Good Morning, James. How are things in your world? I'm glad to have power back. We had some amazing thunderstorms come through

[00:00:40] with, I guess, straight line winds but I mean, I've never seen devastation like this. It was we took a direct hit and my personal trees, somehow we're okay but there's toppled over maple trees in maple trees, snapped in half and we're talking like 100 year old trees.

[00:01:06] Big huge trees, several houses just absolutely crushed. I saw one poor house that had two of these giant trees falling over on it. Yeah, so we had, they didn't, I gotta say the power company did an amazing job.

[00:01:26] But there were lines in here from I think eight states or for the last four days and I mean there were trucks everywhere and they were getting everything back to functioning again, they did a phenomenal job.

[00:01:41] Certainly have had some big storms through the Midwest here, you know, this early summer. That's for sure. Sounds like you've faired okay but just devastating. I did, but yeah. So some interesting stuff so why don't we start with the question of the week?

[00:01:58] This is actually a great question that came in, very intriguing but when is the best time to sell your MSP? When is the best time to sell your MSP? And I know you just went through this so I'll let you go first. How would you answer that question?

[00:02:14] Well, I would say the best time to sell your MSP is after you've given it a lot of thought. I probably thought about it for maybe three years. You know, and in this market you just start getting a lot of people coming around saying,

[00:02:34] asking if you're, you'll be willing to sell your business. And then, you know, and I'd see that started happening in our industry maybe, but seven years ago something like that. And I've gotten my MSP to the point where it was running on its own without my daily input.

[00:02:55] And it was very profitable and had been and it was growing. And it was a great week. It could show, you know, sustain new clients over the last several years and growing revenue based over the last several years. That's important.

[00:03:14] You know, 20 plus percent profits falling down to the bottom line after everybody was paid. And so, you know, it was, it was a nice, it was a nice little company. And I started looking around it, you know, why what's the, what's the value of my company?

[00:03:35] Right. What do I think I could get for it? And I put the numbers through a few of the models that are out there and came up with a number and I met with my financial planner and I was like, you know,

[00:03:48] how close am I to actually filling up what you say I need to have for my retirement funds? And he gave me number and it was very coincidentally the same number. And so I said, yeah, this in the market, the market is good for MSPs.

[00:04:09] Right now and there's lots of buyers right now and they're offering good rates right now. And I can get what I need to fill up my retirement plan. And so it made sense for me to do it then. And I should put a little disclaimer on it.

[00:04:29] I hope everybody can assume the question was based around when you would have the highest valuation, when's the best time to sell? So you get the most money. And or get enough money. Amy's answer was a great one because she just went through this.

[00:04:46] And it is a seller's market for sure. So that's on your side. You had positive sales trends, you showed growth. So that's positive. And I think your company was running without you for a long time. That's another thing that is important.

[00:05:04] You know, and then some of the external things in the economy can't really control. But I still think regardless of where the economy is right now, it's still a seller's market. So anyway, that's that's good to know one thing I want to ask you

[00:05:21] because it's very different when you're buying something versus selling something. Personally, I've been part of seven mergers or acquisitions. Five of me buying something and two of me selling something. First one I sold was just a minority share in my business.

[00:05:37] I was ready to go and move on to something else. That's not nearly as emotional because I thought through that's not like selling your whole business. You just sold your whole business and I did that as well back in 2006.

[00:05:51] I don't think I was ready. I did it. It just kind of we got an offer. It was awesome. And so we did it. It kind of happened really, really quick.

[00:06:00] You thought about it. You said for a few years, but can you elaborate a little bit on the emotions of selling your baby? Well, I think I've told you it was very emotional and that was unexpected for me.

[00:06:16] Right? I helped other people sell their business but I never really understood the emotional part of it until you're actually a done it yourself. And I also bought small books at business several times in the growth of my company.

[00:06:36] And so I've done some of these transactions and it's sort of viewed it as a transaction. But when it came to actually selling my own company, a whole kitten caboodle, you know, all the people go along with branding and the name and the whole thing.

[00:06:58] It was very emotional and that, you know, what could I've what I've finally decided I can convey this with is I felt like I just sold my cat.

[00:07:09] You know, it was like it was a after 23 years. This business was a part of me and, you know, and I just handed it over to somebody and said, you know, here you go.

[00:07:20] And it belongs to you now, you know, and it was just a really emotional feeling and I say I definitely went through a period of morning that was probably six months long.

[00:07:33] You know, where I had to, I do adjust to the idea that this, this wasn't wasn't mine anymore, right? It really was a part of me because when I started it 23 years ago, it was just me.

[00:07:48] And then it, you know, grew up and I put a lot of time and effort into that making that happen. So so when I sold it, it was definitely a part of me, a part of the family kind of thing.

[00:08:00] Yeah, and it's I asked that question on purpose because I've seen that and it's it is very, very emotional. And when I asked that question of people most of the time, the answer just like you said, I was not expecting that.

[00:08:13] And the emotions aren't nearly as there because it's more of a business transaction when you're buying something. You're looking at numbers and culture and your due diligence.

[00:08:23] But when you're selling your own thing and your 100% owner, where the majority shareholder, it's especially when you've been at it as long as you have it's very emotional. Paired for that and tried to talk to someone about that if you're thinking about it, but go ahead, Amy.

[00:08:39] It was really interesting, you know, sitting down at the table at the bank signing all the papers to, you know, that day of the sale.

[00:08:47] It's kind of exciting, right? You sort of go into it like like, like, oh wow, it's actually happening like today's the day, you know. But when you're sitting there at the table going through signing all the papers and doing this stuff.

[00:09:01] The buyer started the table, you can sort of see them getting a little more shell shot as they keep signing these pages with big numbers that they're now responsible for paying off like they just took on some some big debt.

[00:09:16] And so they're looking there, they're getting a little more shell shot as they go along.

[00:09:20] You can see the sort of the weight of it is occurring to them. And then our side of it like the emotional part of it is starting to well-up. So it's not, you know, it's not like a, it's not like a party in that room, right?

[00:09:33] Everybody's having their own set of emotions and they're completely different from each other.

[00:09:38] I thought, well, they're fees for sure. But yeah, that's interesting, very interesting to me. I remember the feeling I had this a long time ago, but when you were signing those papers, that's probably the most emotional time.

[00:09:53] Right? Then in there because it's like reality and there's different phases of emotions you go through when someone's kicking the tires and they're trying to negotiate a price and then they're telling you all the things wrong with your business because they're trying to get a lower price

[00:10:07] and ingestify why they're going to come in with an offer maybe lower than what you're expecting. Hopefully, you didn't have any of that. But that's a little bit normal and can be upsetting but then the emotions of when you finally sign the paperwork that you're done.

[00:10:22] I just remember the feeling this kind of weird, but I remember thinking, wow, I'm going to finally do this.

[00:10:28] And I grew this from $300,000 to $12 million in three years. And it felt like, I mean, some of the people I'd worked with for multiple companies and they followed me to this company that I bought.

[00:10:41] I had a really good team in place. We're waiting all sorts of awards, but I just remember the feeling I remember that hit hit me.

[00:10:48] I only think I could think of was like, hey, if you really want to do this again, you can. You've done it a couple times now. You could go do it again if you really wanted to and that gave me a little bit of comfort, but I was still kind of freaking out.

[00:11:02] That's that could be an indication that maybe you weren't quite ready to make that sale. If you were already thinking like, oh, I could do it again if I wanted to.

[00:11:13] Right, and that's exactly it. Yeah, because I had that feeling is like, maybe it's a little too soon for me, but anyway, so well, things for sharing your personal experience, that's that's awesome.

[00:11:24] And if you have questions around mergers and acquisitions, there's a lot of talks going on right now at almost any technology event you go to there's an M&A session on it.

[00:11:36] So I reach out to either Amy or I, we're happy to chat with you about it and talk you out of the trees if you're thinking of selling the business or try to put some personal perspective in things.

[00:11:48] Yeah, let's just address the non-emotional part of this for just a second so that the cut and dry of when is the best time to sell your business is when you can show a steady growth over the past three years.

[00:12:05] Yeah, when you can show a stable client base so not much churn.

[00:12:12] I also don't want to see you have one client that's making up more than 20% of your total revenues. So if you have that and keep that client if you want to but you need to boost up the other revenues to dilute it.

[00:12:28] And a preferably an owner that is either willing to go to work for the company that's buying them, but I will say everyone I've known who has done it hates it. I've never heard I've never found a person that loves working for the company that bought theirs.

[00:12:51] I've seen some that worked but they were handsomely rewarded and but the time I agree with you the majority of the time it's when your your own business owner you it's hard to go back to be an employee.

[00:13:05] Yeah, see that previous conversation about emotions that you didn't know you were going to have.

[00:13:11] Yeah, for sure. So so they're going to want to see a business owner that's independent from the business right the business has a name on its own that isn't yours and the clients understand that and you'll you'll need to show evidence of that. You know a steady.

[00:13:32] Base of employees is a good thing to right so if you have people that have been there for a few years that's a that's a good indication for them as well that you're running a well run business and.

[00:13:46] You know, one that isn't going to send up a lot of red flags for potential buyers those are that's everything on my checklist as well. I'd add one thing to that and I would just say clean financials. Make sure your financials are updated, they're current, and they're clean.

[00:14:04] Nothing turns off a buyer more than messy financials or multiple financials or even worse. You know, you're showing up with a bunch of receipts in a shoe box. I've seen a lot of books of other MSPs and many of them look like digital shoe boxes.

[00:14:25] And then the funny question is that I hear all the time too often is, Oh my goodness, your books are a best. Who does your books? Um, my spouse? It's like, oh no, that's even worse, you know.

[00:14:39] Clean books as another one. But yeah, thanks for sharing your wisdom on that. That's important and great question. So any other questions like that that you have either around mergers and acquisitions or any other topic.

[00:14:52] We'd love to hear from you just email me at James at current and consulting.com. So hey, lot of stuff in the news to talk about. I don't know if we've got time to dig into these because some of them are pretty big topics.

[00:15:05] But the first one I'll bring up. It looked like here in June there was another big hack. Oh, yon. Uh, you know, in the auto dealerships all around the country. And unfortunately, you know, that made headline news.

[00:15:20] But I didn't really research a whole lot about it other than just knowing that Nationally, a lot of dealerships were down across the country and we're down for multiple days. So yeah, they lost their software, right? They're all using a CS based software.

[00:15:38] And it wasn't the dealerships themselves that were hacked. It was their software vendor. And that took out hundreds of maybe thousands of dealerships around the country in multiple States. You know, in my ransomware and security group that I run on Facebook.

[00:15:59] We had we had a number of new members come in that we're working at dealerships saying, we're dead in the water. Like they could not do business at all. And it was a very bad situation. I mean, the dealerships these days are kind of thin margin businesses.

[00:16:21] They've got a really hustle to make their numbers. And if they miss, you know, just a few days of sales that can that can be big news, big bad news for them in a month. Yeah. Yeah. So that was big news.

[00:16:36] This past week, it looked like the PACS eight beyond event occurred. I wasn't able to make that one. But heard it was well attended. Lots of vendors. Everybody had a good time and I saw lots of pictures on social media. Did you get any other updates out there?

[00:16:53] That was it. That was the whole thing. It was a fabulous party. Everybody took pictures of their friends. And nobody said a thing about the content, what they learned, what they were going to implement in their business now. But, you know, nothing.

[00:17:10] Oh, all was just about the party and the pictures of friends. So it was a great party. I hope they got more out of it than that. But I haven't heard of the peep. Yeah. I haven't either, unfortunately. And it's, uh,

[00:17:24] I can think of less expensive ways to get together with your friends and take photos. So if anyone's looking for ideas, just reach out to me, James at crin and consulting.com. But, uh, yeah, it's, uh, there was nothing noteworthy that I had heard either.

[00:17:39] So, uh, and that's one of the things that's a shame when I know when I speak at events or we host events, one of the things I like doing when we wrap up our events is just call it out and say, hey, what did you learn?

[00:17:51] What did you like? What are you going to implement? What's the one thing you're going to implement when you go back to the office? You know, and it's more of accountability of taking some of the great ideas.

[00:18:01] I'm sure they've heard something, but, um, it's great to have this fun. But you got to implement what you learned too, right? Yep. Same for me. Anytime I speak at an event, it tends to be very practical because, um,

[00:18:16] you know, as, as IT pros and M.S.P.s are time is super valuable. We don't have, you know, we go to these events. We need to learn something. We need to take it back. We need to make that event pay for itself. Right?

[00:18:32] We're going to come back and implement something new that's going to be meaningful for our business. And, uh, so every event has to do that. And, uh, I, you know, I always considered when I went to event if I came back with with one new great idea,

[00:18:47] it was a good event. Mm-hmm. But I have to have it. And so, I'm hoping that people might start sharing what it was that they learned at that PX8BI event because certainly was a big event. There had to be something there.

[00:19:02] Yeah, here's a, here's a quick tip of the week if I could back Amy, you kind of indirectly just said it, but you know, what's the one thing you're going to implement? We should all think like that. But in the, we all can't go to every event, right?

[00:19:16] And sometimes as business owners, we send our employees or key people to those events. When I used to start investing in that, you know, just like Amy hinted at, it's like a return on investment.

[00:19:27] I wanted to see how I could make money or learn from what they came back with. So I wanted them to have fun and take pictures and go to the parties too. But more importantly, I wanted them to learn.

[00:19:39] And I always would ask, hey, on the plane ride back, right? Me a quick one page report of what you learned. What were the key takeaways? And I'm going to share this with the leadership team when, when you get back. So, you know, please take it seriously.

[00:19:53] But that was one of the requirements I had of any of my key staff members that went to any off-site events. So we share that knowledge. I did something very similar. You know, whenever whenever I was going to event or speaking at a event,

[00:20:07] I always tried to take one of the staff members with me. Yeah. And I did not want them to follow me around. They wanted to go out, have their own experience at the conference, right?

[00:20:20] And so, but they said, you know, when when you come back at our next staff meeting, I want you to tell everybody what the conference was like, what you learned. Yeah. Who you talked to, who you met, you know, just kind of debrief of what it is.

[00:20:35] And, you know, what's that, what's that thing that you think that we should implement and start doing now, based on what you just learned? Yeah. Yep. Good. Good feedback. I completely agree. All right. I think we have a time for one last comment.

[00:20:51] There was something that caught my eye. There was an article in USA today, kind of in the tech news section. If it may be think about how far AI will go. But the article was about how in how the social media giant, you know, metah.

[00:21:09] For example, Microsoft would go out and they're scraping for their AI. Information gathering, they're scraping photos, public photos and public posts, public information on whatever they can.

[00:21:24] And then adding that to their, their tool that it may be think of, well, we know our social media accounts aren't completely private.

[00:21:33] And they're doing that as well on us, you know, building these marketing profiles that they could sell back to advertisers, you know, to do the perfect pitch for us to buy stuff, right? And then we're selling that data.

[00:21:45] But how far is this really going to go regarding our privacy? And that's kind of an interesting topic. I mean, we'd talk about that for hours. But what are your thoughts on that? Because it's kind of scary when you really think about it. Yeah.

[00:21:59] You know, if you post something to too many of the social media, you know, that's like standing in front of your house and shouting. Yeah, I don't the, there shouldn't do it.

[00:22:13] If you're putting in social media, you shouldn't have any expectation of privacy and expect that whatever you put there is going to follow you around for the rest of your life. Right. That's just, that's how it's designed. That's what your expectations should be.

[00:22:26] I don't think there's any expectation of privacy there on on social media. But this scary part for me is that, and it's sort of those large language models, AIs are being trained on that because they're for surely is a lot of garbage.

[00:22:40] In accurate information, intentional misinformation, random information, trivial information. I mean, just imagine the, imagine pulling that all together and saying, here you go AI, you know, use this. It's going to be some, some weird crazy AI coming out of that.

[00:23:03] I think Einstein would be confused with all of that data. It's interesting back to the comment. I remember reading something years ago and it said like 90 plus percent of buyers will actually look at people social media. They'll Google the company or the person before they buy from them.

[00:23:24] They'll do some quick research and a lot of social media profiles are what comes up first. I remember vividly, I was doing some recruiting for a client up in Wisconsin. And they were looking at hiring a salesperson looked perfect on paper, interviewed really well.

[00:23:40] And I was just doing my due diligence and I was doing some research. And one of the, his social media profile on Facebook was was horribly offending.

[00:23:52] And I'll just leave it at that. I'm not going to go into detail because it, I don't even want to say it. But it was, it was terrible. And I'm like, oh my goodness, you know, look at this and share that with the business owner.

[00:24:04] And subsequently we moved on to another candidate. But if we hadn't found that hired them their representing our company. And it was completely opposite of the values and the morals of their culture and their business culture.

[00:24:22] So, you know, that's, you know, like Amy said, you know, once it's posted, once it's out there, kind of forever, regardless if you're deleted or not, it's, it's archived somewhere. Yeah, I mean, it's, and yeah, employee employers do search that stuff and they do take it into consideration.

[00:24:41] I think it's, you know, for me, it's perfectly fine if you have a life and you're sharing it on social media. And, you know, you're at a party and, you know, woohoo and concerts and whatever. I mean, it just, you know, normal normal life stuff. One stuff.

[00:25:00] One stuff, yeah, but if you're, yeah, crossing over into the, the criminal and the, the disgusting. Then, yeah, that, that can hurt you. I don't think an average average ordinary life is going to hurt you on, on your job prospects.

[00:25:21] You know, for a while, they were telling all the college kids like delete all your social media accounts. Don't have the social media account, don't post anything. And, and actually, I was an employer.

[00:25:33] I would sort of wonder about somebody if I couldn't find them on any of the social media platforms. Like, or what's going on here? Yeah. That's not, that's not normal today, right? That's a big red flag.

[00:25:45] If they, if they don't have profiles set up, if you can't find them, you know, what are they hiding? You know, that's first thing it goes through my mind. Yeah. And that's always a series of questions like, how come you don't have any social media accounts?

[00:25:58] All right, cool. Well, hey, we're going to go ahead and wrap up. I think looking ahead here at Q3, Q4 timeframe, we're quickly approaching the second half of the year. Any events that you're looking at attending here at July August, September. Do you got anything coming up?

[00:26:21] Definitely not for July in August. I've reserved those for on on the water. It's a prime, prime voting season. Yeah, so. So yeah, definitely not anything for this summer. But come September. I think, you know, my own peer group is going to get together in Pearson.

[00:26:45] They've been looking me that that's something that they want to do. So, so we're going to I'm coming down to speak to yours down in Florida and we'll have something appear in a peer and Michigan come early fall is when I think that's going to happen.

[00:27:01] So nice. Yeah. I know there's there's a Q3 mastermind event in Denver late September that I'll be at. There's an M&A event late September. I'm speaking at and then the SMB tech fest Q4 is in mid October.

[00:27:18] So hopefully, our paths will cross then but that's all I've signed up for right now. So there's all sorts of events coming up, but always seems it gets a little quiet in the summer, but then it really heats up in the fall.

[00:27:31] So save up those travel points everybody.

[00:27:35] We may we may cross paths out at the SMB tech fest. I am signed up to speak it one later in the year and I can't remember if it's that one or the one after, but we might we might cross paths in so cal.

[00:27:48] So cal that would be fun. That'd be fun. All right. Well, hey, thanks for joining me today on the SMB community podcast. That's it for for now. If anybody has any questions or comments anything that we can help you with.

[00:28:02] Amy and I would love to hear from you. So you could post any comments out on the SMB community podcast.com website or send us a note and we will see everybody next week. Thanks everybody.