Greg Northrop of iT Valuations

[00:00:01] Hello, ladies and gentlemen. This is a December and I believe final for this year, MSP Initiative Live for 2024. It is December 19th. We're about to hit all the fun holiday stuff, but buckle up here. We'll get some housekeeping out of the way and then we'll see where we go.

[00:00:19] So MSP Initiative.com. This is where you're going to find where we park all the stuff online for you to track. Like this session, which is being absolutely recorded and will be parked on our sessions page along with every other podcast session we've ever done going back to, I don't know, March of 2020.

[00:00:34] But you'll get to our YouTube page or podcast or you can like, download, subscribe, share, forward, all that good stuff. It's all there.

[00:00:42] So MSP Community Minds, we're planning on doing another one of these next year. Looks like Dallas. We don't have the dates yet. We'll announce that going into 2025. Very educational event. Check it out. The format from this year, including panelists and workshops that were very MSP focused and without a credit card swiper at the end of it. So check it out. Definitely education focused.

[00:01:03] Then we had all of our community block parties this year. Berlin and Miami, Orlando, Sydney, Denver, right? All over the place. So check them out. Go to facebook.com slash MSP initiatives as well, where you can see all the albums from all of those parties. There was a good time. Here are our deals and offers from other vendors from around the industry. If you can take advantage of them, feel free.

[00:01:26] And lastly, Jen, who has meticulously been tracking all of the events in the sandbox for next year, has been updating our industry calendar. As you can see, there's a lot of events already in the calendar for next year. Check it out. We're hearing even more in 2025 than in 2024.

[00:01:42] So as I've always said, if you don't want to be working, you can surely be somewhere else. So MSP initiative.com. There it all is for you.

[00:01:53] So today we bring on not a new company, but a new person from this company, Greg Northrup from IT Valuations. First time on the podcast. How are you doing today, Greg?

[00:02:06] I'm doing well. Thanks for having me, George.

[00:02:07] Greg apparently is based out of Minnesota and we were just arguing about temperatures depending on where you are in the world.

[00:02:14] And I was, I was just telling Greg that when the Eagles and the Patriots were in the Superbowl together, thank you because of NFL who apparently if you build a new stadium, they just give you a Superbowl.

[00:02:27] I don't know how that all works out, but that's what happens.

[00:02:29] And so I drove from Pennsylvania, Philadelphia, all the way to Minnesota, 17 hours into the negative 15 degree temperature.

[00:02:38] Watch that Superbowl live. And man, it is not a pretty temperature, especially for like an event.

[00:02:44] That's supposed to be like a vacation E type thing.

[00:02:48] At least you were indoors.

[00:02:51] Yeah. I mean, listen, like their, their, their branding for the event was like the great North.

[00:02:56] And it was like, isn't that Canada that I missed something? I don't know.

[00:03:01] Like not that I want to be in Canada in February either.

[00:03:04] No, but I did get to see my team win against Tom Brady and Bill Belichick.

[00:03:09] So you can't take that away from me.

[00:03:11] And with Nick Foles off the bench, it's like a, I'm sure somewhere along the line, he sold the rights to his story to like Disney or make a movie at some point.

[00:03:19] Yeah.

[00:03:20] I know, I know Kurt Warner had a Disney movie made after him.

[00:03:23] So this is just perfect right after it.

[00:03:26] But anyway, Greg, welcome to the show.

[00:03:30] Since we've never talked to you before, I always like to give people, you know, a chance to like explain their background, like a little bit of their history.

[00:03:36] How did you get to where you're at today?

[00:03:38] Kind of thing that way.

[00:03:39] Like, you know, we just, you know, educate the masses on, on, on who you are before we get into what we're going to talk about.

[00:03:44] So have at it, my friend.

[00:03:46] Absolutely.

[00:03:47] Thank you for teeing this up and for having me.

[00:03:51] I am a CPA by trade.

[00:03:53] I've worked in the industry for nearly a decade.

[00:03:56] Son of a CPA as well, who owns his own firm.

[00:04:00] Didn't think I was going to get into the quote unquote family business.

[00:04:02] And then here I am, you know, so many years later.

[00:04:05] But I went to BDO, fifth largest firm in the world, out of school, was there for eight and a half, almost nine years.

[00:04:13] And really oversaw our high net worth individual and private equity practice here in Minneapolis, where I had a team of like eight people underneath me.

[00:04:22] And we did everything from, you know, estate planning, succession planning, transitioning the business from one generation to the next, selling the private equity and then setting up brand new funds for new private equity groups.

[00:04:34] And so from that experience, got a lot into M&A from a tax standpoint, a lot of like proactive planning and just unique kind of consulting and structuring around how do you, what entity is the best selection for you?

[00:04:47] What is the best trust vehicle for your state and whatnot?

[00:04:50] And so all of those skills and like background were really transferable to IT valuations, where I've been kind of more of the tax due diligence guy in transactions, really helping out with valuations for companies.

[00:05:03] And then spinning that into IT tax advisors, which is our spinoff company that does tax advising and tax kind of consulting for MSPs to really help them plan ahead for the potential liquidity event of a transaction.

[00:05:18] That's awesome.

[00:05:19] That's a lot.

[00:05:19] I mean, I'm going to pick on a couple of pieces here because I got some things I think I know, but hey, we'll find out.

[00:05:25] I like to talk to people who actually know and see if I guess you're right.

[00:05:32] But at least from what I know, and by the way, I'm not an expert.

[00:05:36] Greg is an expert.

[00:05:37] So we're asking Greg to expert.

[00:05:39] But this is just George, you know, whiteboarding here.

[00:05:45] When private equity and VC guys, companies, funds, whatever you want to call them, go out into the world, right?

[00:05:52] Like they don't need to hit on every investment, right?

[00:05:55] Like maybe if they do 10 investments and two or three work out, they won, right?

[00:06:00] Right.

[00:06:01] Doesn't mean that the rules aren't all the same and the playbook isn't there because clearly there is one, but they don't win on everyone, right?

[00:06:08] No.

[00:06:09] But when you're talking about valuation, particularly when we talk about multiples, I have always heard a couple of things.

[00:06:19] One, interest rate plays into this, right?

[00:06:23] You know, which feeds the greater market and stock market and all of that, mutual funds, all the stuff that, you know, bonds, right?

[00:06:29] It's all tied into the same thing.

[00:06:31] So that's number one.

[00:06:32] The cost of money changes how that math works, right?

[00:06:36] Yep.

[00:06:37] And number two, the risk level that comes behind that, right?

[00:06:43] Are they willing to go a little bit more on a deal versus hold their line versus maybe cut back on a deal?

[00:06:49] Then that range changes depending on what I just said before, right?

[00:06:53] Cost of money, right?

[00:06:55] Yep.

[00:06:55] So when we hear, like, for example, public news, go out there and fact check me, guys.

[00:07:01] When the Federal Reserve came out, I think, yesterday and said they're coming down 25 basis points, interest rates pointed down, have a new administration coming in.

[00:07:11] They're already talking about trying to continue that interest rates coming down.

[00:07:13] The mortgage rates coming down.

[00:07:15] The auto rates come down.

[00:07:16] All the stuff feeds from the same rate, right?

[00:07:19] Yep.

[00:07:20] Would you say that then if the interest rate continues to go down, that there's an upside that your deal will be worth more coming up versus historically over the last two or three years?

[00:07:33] One.

[00:07:34] And two, are you in a better negotiating position as a seller then to maybe squeeze out some extra juice out of the deal?

[00:07:44] Honestly, it's going to really free up a lot.

[00:07:46] I think it's going to free up a lot more funds for M&A activity.

[00:07:50] And there's already been a significant amount of funds freed up for M&A activity, which is why the market's been really hot really the past two years.

[00:07:57] It's cooled off a little bit here in 2024, specifically leading up to the election because of the uncertainty.

[00:08:03] Uncertainty typically drives companies to just withhold from making decisions because they want to try and let the dust settle before they pull the trigger on a large investment.

[00:08:13] But when you're thinking about, okay, now looking ahead, what is this new regime of more red than blue federal government?

[00:08:22] And what does that mean for not only interest rates, but taxes and just the economy at large?

[00:08:28] I mean, you saw what the stock market did the day after it was announced that Trump won the election.

[00:08:34] It skyrocketed up.

[00:08:35] And the same happened back in 2016 when he won the election then.

[00:08:39] And a tax law was passed a year later that then also spiked the stock market back up.

[00:08:44] And those events led to a spur of a ton of private equity money being launched into different sectors.

[00:08:52] And even the private equity groups we see today, a lot of that started kind of in that 2015-16 timeframe when all of a sudden a lot of that kind of rebounded out of, you know, kind of that, you know, the housing market crash back in 07-08.

[00:09:06] Now all of a sudden private equity was at its kind of new peak and growing from that standpoint.

[00:09:11] So I don't know if people would necessarily get higher multiples per se.

[00:09:15] I think that remains to be seen, but there's going to be more money out there.

[00:09:19] And when you have more money out there, that means there is, you know, in the law of supply and demand in economics, which is a small minor of mine from school back in the day.

[00:09:27] But when you look at that supply and demand, there's a lot more demand and so few supply of like specifically quality sellers.

[00:09:35] So, you know, one piece of advice that I've been giving companies that have been doing valuations and tax advising with them is, you know, focus on your business and try to figure out how can I refine my business to be one of the more sought after businesses in the marketplace?

[00:09:52] Because, yes, there's going to be there's demand out there, even if you have a bad business.

[00:09:57] But the multiple jumps up when you have a highly credible, like high operational maturity business where you can point to your success and your operations and everything you're doing that it just continues to de-risk the investment for private equity.

[00:10:14] So they have their own risk calculator, their own ROI calculator that they're saying, all right, we believe, you know, the interest rate is X.

[00:10:23] But with this low risk factor, we can actually monetize our investment within three to five years versus a higher risk factor.

[00:10:30] It might take seven to nine years.

[00:10:31] And so that's where the more you can de-risk that potential transaction.

[00:10:37] Yes, you will get a higher multiple will be higher than necessarily the market today.

[00:10:41] Not necessarily, but it'll be on the higher end of what we're even seeing today.

[00:10:45] That's good.

[00:10:45] No, that's good.

[00:10:46] All right.

[00:10:46] So, like, I wasn't crazy.

[00:10:48] You pretty much, you know, you said I was in the right state of mind here.

[00:10:54] I think I just saw two days ago, the guy, the family that controls SoftBank was like, hey, we're about to make a hundred billion dollar investment into the United States over the next four years.

[00:11:05] And then Trump's like, make it 200 billion.

[00:11:08] He's like, OK.

[00:11:09] And then all of a sudden it was 200 billion.

[00:11:10] I was like, well, it's like monopoly money.

[00:11:12] But OK, cool.

[00:11:14] So like that already was like, wow.

[00:11:16] I mean, and I think SoftBank is one of the investors in Pax8's last round.

[00:11:22] And in MSP space, that's a name that a lot of people know.

[00:11:25] So for whatever that's worth, you know, you can see, right?

[00:11:29] It's all trickles down, right?

[00:11:32] All that being said.

[00:11:34] Then there's also the tax.

[00:11:36] Since you come from the tax background, there's also the tax rate conversation, right?

[00:11:41] The corporate tax rate.

[00:11:42] You know, I think a lot during this election cycle.

[00:11:45] And we're not trying to get it political.

[00:11:46] We're just talking about reality, right?

[00:11:47] Like they would say, hey, we're going to move that up.

[00:11:49] And then obviously that's not going to happen because that didn't, you know, that those people didn't make it.

[00:11:55] So I think the tax rate's at 21% right now.

[00:11:59] Is that correct?

[00:12:00] And then like that's assuming they're going to extend the tax cut from the, you know, from 2016 cycle, right?

[00:12:09] Is that, am I, you know, oh, I'm saying.

[00:12:11] Half correct.

[00:12:12] Correct.

[00:12:12] So the 21% rate is actually locked in on the corporate level.

[00:12:15] It's the 37% rate on the individual side in those tax brackets that would bump up and are set to sunset at the end of 2025 here.

[00:12:23] Okay.

[00:12:24] So the people who have their taxes roll into their personal, right?

[00:12:28] Like the subchapter S type people, that kind of stuff.

[00:12:30] That could be a problem.

[00:12:31] Correct.

[00:12:32] Yep.

[00:12:33] Which I think a lot of people are in that boat.

[00:12:35] Yeah.

[00:12:35] Not to mention if you qualify for that 20% qualified, you know, small business, you know, deduction, the QBI deduction, that would be going away as well as part of that sunset.

[00:12:45] So that was part of the, you know, stacking of issues that if all of a sudden not only are the rates, would the rates go up?

[00:12:52] You wouldn't have that deduction.

[00:12:53] So technically a business owner's tax rate could go up by as much as like 8% when you think about the compounding effect of the 20% haircut and the, you know, 39.6% highest tax bracket versus 37%.

[00:13:07] Okay.

[00:13:07] So like things to pay attention to.

[00:13:10] Let's hope that they maintain things, right?

[00:13:12] You know, like, do this, not, or this, not this.

[00:13:18] We don't want it to go up for sure.

[00:13:20] How much do you know about the R&D tax credit?

[00:13:23] I think a lot of MSPs are unaware that it's a thing and that they could qualify.

[00:13:29] I would think almost every MSP could qualify for it at some level.

[00:13:33] Yeah.

[00:13:34] I mean, there's a lot of, there's a lot of regulations out there that have changed in the last 24 to 36 months around the R&D credit.

[00:13:41] You're absolutely right.

[00:13:42] There is a lot of what MSPs are already doing in their day-to-day operations that they could qualify for, especially when you think about the usage of AI and other platforms right now, where it's like there's a lot of investments that companies are making that could potentially qualify for that credit.

[00:13:57] Not to mention there's also potentially state R&D credits available for, you know, companies in specific states that offer that as well.

[00:14:05] One thing to note with the federal R&D credit was there was a law change where now instead of you getting all the credit up front, you actually amortize that credit over five years.

[00:14:17] And that's been kind of a knock against the credit in some cases because you're converting your expense into a credit, which is typically a better option because dollar for dollar is better than tax-effective dollar.

[00:14:29] But when you have to now amortize that over a period of time versus getting it all in the same year, the argument is it's almost better to just take the deduction than take the credit.

[00:14:39] Now there's other rules around when you are required to take the credit versus, you know, can take the deduction.

[00:14:45] But that would be a more in-depth conversation on a case-by-case basis.

[00:14:49] Sure.

[00:14:50] But I think a lot of MSPs have not even realized that it's a thing.

[00:14:54] Right.

[00:14:55] And like, you know, documentation, procedure, testing, research, right?

[00:15:00] Like I think every MSP is testing a multitude of technologies as they're going along their journey and like tests and environments and time investment, documentation creation.

[00:15:11] Like all of this kind of falls into this bubble.

[00:15:14] Yep.

[00:15:15] Exactly.

[00:15:20] It's interesting as, you know, people try and understand, you know, how to move forward, right?

[00:15:27] Like I've lived on both sides of the aisle here, right?

[00:15:30] So let me kind of define that for you.

[00:15:32] You know, I've been in the MSP business, right?

[00:15:36] Like I understand what it looks like on a day-to-day and it's frustrating at times, right?

[00:15:41] Because like a lot of MSPs aren't actually profitable, right?

[00:15:46] You know, like that's a problem.

[00:15:49] I've been on the other side of the aisle, which is a SaaS vendor that sells to MSPs, right?

[00:15:56] Right.

[00:15:56] Slightly different wrinkle because, you know, historically in my position, the valuation of these two companies are not the same.

[00:16:03] Right.

[00:16:04] All right.

[00:16:05] Professional services company, which is what an IT consulting service provider is versus a software company, darn it looked at the same, right?

[00:16:14] Not only from a valuation standpoint, but from an investable standpoint.

[00:16:18] But let me go this way.

[00:16:21] Is traditional banking and lending finally catching up to this industry?

[00:16:28] Because it seems like historically they've been treating it like plumbers and architects and lawyers.

[00:16:35] And like they just don't separate what happens in this sandbox differently from others.

[00:16:41] They are.

[00:16:42] I mean, there's even a number of banks that we've partnered with on transactions in the last year.

[00:16:48] You know, Great America is one example where all of a sudden now they're launching financing on acquisitions and not just on, you know, equipment purchases.

[00:16:56] And so when you're thinking about acquisitional financing, they're catching up to the fact that multiples are real in this space and it's not a 1x revenue multiple or anything less than that in some cases.

[00:17:10] You know, you really are looking at the cash flows of the business and there is a cascading effect of more cash flows equals a greater return, which equals a higher multiple.

[00:17:19] And so you're seeing the banking industry start to catch up to that.

[00:17:23] And I think the biggest differentiator in this space, as opposed to some of those other spaces, like you mentioned, some of the trades and other professional services is the recurring nature of the MSP space.

[00:17:34] The contractual obligations, the degree of difficulty of which a company or a customer would have to go through in order to change providers, which essentially in most cases deters them from leaving altogether because they'd rather try to, you know, figure out or fix the relationship with their current provider than go somewhere else or price shop around.

[00:17:56] So the nature of the industry, I think, has started to reveal, especially when you look at the data, the data is just more prevalent now than it was, say, you know, before COVID.

[00:18:08] Then now you can actually point to historical data post-COVID in this new environment in which we live in.

[00:18:14] And we can look and they can point to private equity, who's also financing these transactions and they're believing in these companies.

[00:18:20] And they're actually seeing the second bites happen as well, that that whole mixture of events in the space has given banks kind of the least or the most risk averse people on the planet.

[00:18:33] You're giving them the peace of mind and comfort to put their backing behind investing in the space and finance transactions.

[00:18:40] So let me ask you this follow up question.

[00:18:42] Amen. So where as an MSP or a software company that sells MSPs, I know the slightly different wrinkle, but I'm going to throw both in there instead of going into a funding round, let's call it a seed round or around a where I would go to a completely different lane than, hey, I'm going to a bank to ask for a loan or a line of credit for that matter.

[00:19:05] Have you seen people now shift back to traditional banking as an option?

[00:19:11] And like, what is their tolerance level, right?

[00:19:14] If I'm a, now let's just throw a number out there.

[00:19:16] I'm a $5 million MSP.

[00:19:18] I know that's a pretty good size MSP, but let's just say how much money would be on the table from traditional banking in that scenario?

[00:19:27] Yeah, I have seen a big swing back to traditional banking.

[00:19:30] Now, the one thing to keep in mind with traditional banking, depending on if you go down the investor route is you might be able to get more favorable terms in the investor route, or you might even be able to defer some of that into more of a convertible note where it's more equity payout.

[00:19:45] So then you don't have to suffer, you know, cash flow shortages to allow you to continue to scale and grow.

[00:19:51] You're just diluting your future payout in the, in down downstream down when you've, you know, sell to private equity or whatever in the future.

[00:19:58] But the nice part about using banking now is we've seen as high as even 50% of the value of the acquired company that you're looking to purchase that they're willing to, you know, you know, lend up to in some cases where all of a sudden you're going to go and do a $2 million transaction where we've seen in some cases them lending up to a million dollars in those instances.

[00:20:22] Now that's on the high end. More typically we've seen about 30% of, you know, the acquisitional value.

[00:20:30] But again, every bank is a little bit different and they're at risk appetite is different.

[00:20:35] The other component is the value of the existing company.

[00:20:38] And so what we've actually done at IT valuations is come up with a valuation as a service program where we can track the value of a company every quarter.

[00:20:48] And we're actually partnering with these banks from a financing standpoint to be able to provide not only a valuation of potentially the company that's being acquired, but also a valuation of the acquirer company so that we can essentially help pre-qualify MSPs to go out and do acquisitions.

[00:21:08] Because a bank like a bank, as an example, can look at our valuation report, look at the cash flow analysis that we've done and say, hey, we're willing to lend up to even an X dollar amount of the existing business in some sort of acquisitional financing line of credit, if you will, that then that company can go out and go do acquisitions with.

[00:21:31] Wow. Okay. So number one, I'm going to use this as an analogy because I think enough people have been in this situation.

[00:21:39] You know, I get into a car accident. I call it my car insurance company. They send out their adjuster. They're like, yeah, this is what we're going to give you. And it's like, that's not right.

[00:21:48] And then I got to call public adjuster and I got to fight this game, right? Where it's like, well, no, you know, I've got a guy that's not you giving me a completely different number.

[00:21:57] Oh, by the way, I went out into the market and I looked at my vehicle with my mileage and my year model, make, et cetera. And I found that they're for sale for this dollar amount.

[00:22:07] So now I'm coming back to you arguing what you're telling me, right? Like, you know, so like how, how does like, you know, so it sounds like twofold with the banks that you're already familiar with.

[00:22:19] It sounds like they've already, they're taking what you're giving them a little bit more seriously, but let's say I'm going to a local bank here in Philly that you've never worked with.

[00:22:28] How is it, how important is it for me to have what you're producing as a value of my business as a third party going into the bank saying, Hey, just before you come back to me with your back end bean counter and whatever room they're in, like, this is really what my company's worth.

[00:22:44] I had a third party unaffiliated entity come and give me this. Yep. Every bank is different, but what we've typically seen is the banks that we've started to have conversations with, which I think we're up to like four now that we've had active conversations with.

[00:22:58] Everyone has been like, if we had, if our underwriters had this, that would, that would streamline the process. Because again, as we talked about on the front end of this kind of topic, the banks were really slow to adjust to the fact that the MSP space is different than plumbers and other trades and professional services.

[00:23:18] And so our evaluation report kind of helps point to that to be like, no, this is the intrinsic value in the company as it stands today.

[00:23:26] You know, let alone whatever acquisition they go out and do with the funds that you're lending them.

[00:23:32] And so now we can even hypothetically highlight, here's the value of the company they're going out and buying.

[00:23:37] And now we can layer those together to say, well, that $5 million company that you're lending to is buying a $2 million company.

[00:23:44] And it's not five plus two, it's actually, you know, five plus two plus some other intrinsic value of bringing the companies together.

[00:23:50] It's actually worth eight or nine.

[00:23:52] And now that's like, okay, those cash flows are enough to support a loan of 4 million or whatever the numbers may be.

[00:23:57] So we're just seeing a lot more willingness and openness to actually look at that data and give it a strong view, like, you know, review of does this impact what we're willing to lend?

[00:24:11] No. Hey, listen, I mean, if you don't come with your homework done, you leave your fate in somebody else's hands.

[00:24:18] I'm not saying that their input isn't in there for sure it is, but you at least can set the conversation rather than it being dictated to you.

[00:24:26] So I like that.

[00:24:28] Now, let me ask you from the other side, you were referencing in the terms of an actual acquisition or some sort of transaction.

[00:24:35] What if I'm just an MSP, I'm growing granularly and I just need working capital?

[00:24:39] Does that work in the same way there?

[00:24:41] Yeah.

[00:24:41] And typically it's a lower amount that you can lend on because again, you're not lending on a future value or growth that you're already going to be doing with the funds.

[00:24:49] So then you're essentially opening up a traditional line of credit based on your existing business and cash flows of your existing business.

[00:24:56] But same methodology, same analysis, just looking at only one company versus two.

[00:25:02] Got it. Makes sense.

[00:25:03] So let me ask you this.

[00:25:06] Let's just look at 2024 because we're at the end basically.

[00:25:09] And I think all of your, you know, somebody is going to come out, maybe IT valuations in January and say, here's what happened in 24.

[00:25:17] Here's what we think is going to happen in 25.

[00:25:18] But let's just work off the data that we have.

[00:25:20] Right.

[00:25:21] Yep.

[00:25:21] So what transactions are seeing the better, you know, you know, outcomes than others?

[00:25:30] Are you seeing any trends in 2024 that you're like, well, you know, if, if you did it this way versus that way, there was a clear difference in what happened at the end.

[00:25:40] Anything like that?

[00:25:41] Yeah.

[00:25:42] So a couple of trends we've noticed this year is every one of our deals slipped in terms of timing.

[00:25:49] They just got pushed back.

[00:25:51] And the reason why is buyers are getting more and more sophisticated in the space.

[00:25:56] And again, going back to that whole uncertainty of the markets and the maybe less than ideal willingness to part with cash as part of a transaction.

[00:26:06] Buyers were digging into things more, which then prolonged due diligence.

[00:26:11] Instead of seeing a traditional, maybe 60 day due diligence period or even 90, we've seen as much as 120 or longer in some, you know, more unique cases.

[00:26:22] And so that's, or even just pre-LOI, we've seen a lot more almost like pre-LOI due diligence on a lot of deals versus, you know, maybe a year ago we were seeing kind of a rush to the table to get the LOI done and then get to due diligence.

[00:26:37] And I'm not saying that that's the case on every deal.

[00:26:39] It's just a trend that we've noticed.

[00:26:41] We've also noticed companies with sales engines that have a sales team well built out are getting a far higher multiple than ones without.

[00:26:51] And far higher meaning potentially a half turn to even a full turn higher.

[00:26:56] So instead of getting a 5X, they're getting a 6.

[00:26:58] Or, you know, instead of a 6, they're getting a 7.

[00:27:00] Having that sales engine, we're just seeing more and more buyers.

[00:27:05] Again, they're getting more sophisticated.

[00:27:07] They're like, that is truly the differentiator in their mind between a true company and just a really good functioning lifestyle business.

[00:27:16] And whether or not that's fair, that's where we've kind of seen the line be drawn is around that sales engine.

[00:27:25] And we've also then seen more and more like buyers completely throw away the whole earn out strategy.

[00:27:35] Not to say that it's not ever prevalent.

[00:27:38] I mean, there's a deal I'm working on right now where that's a part of it.

[00:27:41] But really, it's only used in unique cases where you need to truly bridge a gap or make the company look a certain way in order to warrant the purchase price that's on the table.

[00:27:50] But otherwise, we've really seen a move towards rollover equity and some sort of deferred payment structure, whether it's a conditional seller note or just an outright deferred payment model.

[00:28:02] Conditional seller notes are really prevalent in the $5 million or less dollar transactions, specifically as it pertains to risk around the owner and their involvement in the business, risk around customer concentration if you have really large customers,

[00:28:17] or risk around MRR if all of a sudden your MRR is kind of streaky because you've had maybe a volatile loss through M&A or departures of customers.

[00:28:28] They want to try and right size that and ensure that the revenue is sticking a year later.

[00:28:33] But for those greater than $5 million in revenue size companies, conditions are almost out the window from a conditional seller note standpoint.

[00:28:43] It's almost all just deferred payments for rollover equity at that point.

[00:28:48] Interesting.

[00:28:49] So basically, you're getting your money up front.

[00:28:51] Yep.

[00:28:51] I mean, you're getting 60% to 80%, 80% on the high end, 60% on the low end of cash up front.

[00:28:59] If you are getting 60%, we're seeing a lot of split 40% deferred payments where it's 20% is truly a deferred note or payment.

[00:29:07] The other 20% is rollover equity.

[00:29:08] When you start getting into more of a 70-30 or 80-20, it's pretty much all rollover equity that's being presented versus any sort of deferred payment.

[00:29:16] And then even buyers are getting unique in their structuring of what is rollover equity.

[00:29:21] You know, we saw one recently where their equity cap table structure is you actually get rollover equity in two different unit classes.

[00:29:30] One is a guaranteed rate of return, but it's fixed and you can't actually exceed that rate of return of call it 8%.

[00:29:37] And then the other class is uncapped.

[00:29:39] It's actually true equity.

[00:29:41] So that's where you get your like three to five X multiple.

[00:29:43] So it is important to understand like, okay, if I got 40% rollover equity, what did you actually get?

[00:29:50] Is it truly equity, the full 40% or is it a makeup of these different classes?

[00:29:54] And that actually impacts your potential return on the second bite of the apple.

[00:29:58] No, it makes sense.

[00:29:59] I mean, how many people are concerned that, you know, like obviously rollo equity into whatever comes next, right?

[00:30:07] Like you have no control over that.

[00:30:09] Could tank, right?

[00:30:10] I mean, it's possible that it just doesn't work out.

[00:30:13] You know, how many people are just like, nope, tell me what the biggest number you can give me right now is.

[00:30:17] I don't care about, you know, any sort of deferred or equity payments.

[00:30:21] Yeah, we've seen it.

[00:30:22] I think age is a big qualifier there for people.

[00:30:27] You know, if you're, you know, 65, 70 years old, your retirement set and you're just like, I want to get out.

[00:30:33] So then maybe you're a little bit more risk averse and you don't necessarily need to, you know, play the gamble of the second bite.

[00:30:40] You know, more of our kind of call it 50 to 60 year old owners that are maybe have a little bit left in the tank and they're willing to stay on for a bit are more apt to take that second bite because they have a little bit more runway.

[00:30:52] They know that their number is always growing with each passing year because of inflation from a personal wealth target standpoint.

[00:30:58] So they're like, I wouldn't mind having a little bit more of a growing figure because if I would have that cash, I'd be investing in the market.

[00:31:05] And arguably private equity typically outperforms the market more often than not, not always the case.

[00:31:12] But, you know, you make that financial decision to say I'm willing to invest in this private equity versus the public markets.

[00:31:21] Gut feeling, right?

[00:31:22] I know this is a prognostication, but take it for whatever it's worth.

[00:31:26] 25, 26, 27, 28, right?

[00:31:28] Next three to three, four years for a lot of companies, at least I have, who thought they would have been public by now, not pull the trigger to kind of been on this holding pattern, right?

[00:31:39] Because they were waiting for things to, you know, kind of shake out, dust to settle, like you said earlier.

[00:31:45] Let's say it goes the way everybody's thinking that it's going to go, right?

[00:31:49] Markets are going to go up.

[00:31:50] Interest is going to go down.

[00:31:52] Everyone's going to get, you know, kind of back into that 2019, 2020, 2021, 2021 realm, right?

[00:31:58] Where like just seem to be fast and loose.

[00:32:00] How does that affect the MSP's valuation in that, you know, in that realm?

[00:32:06] Does it go up?

[00:32:08] Does it stay the same?

[00:32:09] You know, maybe it's less valuable.

[00:32:12] I don't know.

[00:32:12] You tell me, what does it look like from your guess?

[00:32:14] It probably goes up.

[00:32:16] But again, it remains to be seen.

[00:32:18] So how the multiples will effectively work is on the larger end.

[00:32:22] When you start seeing some of these larger MSPs, larger roll-ups, either decide to go the IPO route or sell to even larger private equity groups at massive multiples.

[00:32:35] Those have the potential to reset the market.

[00:32:38] And they could reset it in a negative way because there could be this right sizing of you actually don't get to scale on a, you know, call it one-to-one equivalent.

[00:32:47] For every million dollars of EBITDA, you get an additional 1x return.

[00:32:50] There might be some sort of right sizing that says, no, actually at a certain point, this is what the new scale or model is.

[00:32:56] And it's effectively going to be dictated by actual events.

[00:33:02] And with the markets, you know, going up potentially, with interest rates going down, again, potentially, with tax rates going down, potentially, with all those things, that would seem to render that those larger transactions are more imminent than not with that fact pattern.

[00:33:17] And that's going to effectively give people the information they need to see what does that do to the market.

[00:33:22] Because if it level sets the market to say there actually is a massive return possible of, we'll throw a number out there, like 20x at a certain, you know, however many millions of EBITDA, you work backwards.

[00:33:35] And maybe that level sets to, well, geez, we were paying four to five on sub $500,000 companies.

[00:33:41] Maybe it's more like five to six that we're willing to pay.

[00:33:43] Because if we're doing a roll-up strategy, I'm willing to get that EBITDA in there because I have the potential of hitting 20.

[00:33:49] And so, I mean, we've already seen that with private equity.

[00:33:52] They used to say, draw a line in the sand at $2 million of EBITDA.

[00:33:56] They really wouldn't look at companies below that threshold.

[00:33:58] And we're seeing them go as far down as even $500,000 EBITDA companies.

[00:34:04] If it makes sense, it's in the right geographic area.

[00:34:07] And there's the right mix of tech stack and personnel and whatnot, where, you know, we're just seeing a lot more appetite for taking on a smaller company because of the EBITDA arbitrage that they could potentially render by going from paying five to six X to selling at 12 to 15.

[00:34:24] Yeah.

[00:34:25] I mean, something to keep in mind if you're the guy on the selling side, right?

[00:34:29] I mean, you know, like there's a, you know, why are they doing it?

[00:34:32] Well, there's a cumulative effect that they're trying to hit, right?

[00:34:35] When you rubber band everybody together?

[00:34:37] Yep.

[00:34:38] So how much on that topic are you seeing more trends, any trend where you're seeing a lot of MSPs self-merging themselves to create a bigger unit so that they can effectively argue that their package as a group is already what you're after, right?

[00:34:59] Like, are you seeing that happen more or less?

[00:35:02] More.

[00:35:03] More.

[00:35:03] We call it bundling.

[00:35:04] So we are actually working on a three-way bundle right now.

[00:35:09] It's actually technically five because one of the companies has multiple entities within its structure.

[00:35:14] And that one's going to close in a couple of weeks here.

[00:35:16] We have another three-way bundle that we're launching here in Q1.

[00:35:19] And so we're seeing that actually work from the standpoint of when you're looking at a PE-backed MSP that's buying this, you know, bundle.

[00:35:30] So depending on what their strategy is and what their methodology is from a consolidation or integration standpoint, it's almost easier for them to do the integration just one time than to force the company to do an integration and then them to integrate from that.

[00:35:46] Right.

[00:35:47] Because they already know they're going to integrate.

[00:35:48] So it's like to them, it's almost no different integrating three different companies than integrating one company that's the same size.

[00:35:55] And so they're willing to essentially pay, you know, a little bit more as if it is one company because they're still getting the benefit of getting that much additional revenue in EBITDA at the end of the day.

[00:36:07] And they're also looking at some of those consolidations and synergies that they're going to render where maybe on the combined, they're only at a 15% EBITDA, but they know that they can drive 20 to 25%.

[00:36:18] So they're already making money right out of the gate if they're able to do that.

[00:36:22] And so it really depends.

[00:36:25] Now, from a, if you're thinking a platform standpoint, we do see a lot of PE groups that are trying to find their first platform company,

[00:36:32] maybe not liking the bundle as much because they want them to be fully integrated and already have the tech stack figured out and everything like fully integrated.

[00:36:41] So that now they're only focused on integration on all future transactions rather than their first one, because they're a little bit hesitant to take on that when they don't know what they're doing.

[00:36:50] But it really depends on the PE firm.

[00:36:52] It's a case by case basis.

[00:36:54] That's fair.

[00:36:55] So, and remembering conversation from the past, when you merge multiple companies together or bundle them, whatever word you want to do them, you can almost do that in a tax free way.

[00:37:06] Yep, you can.

[00:37:08] So like, basically, you're not paying any penalty until an actual transaction occurs where you're selling the group.

[00:37:18] Yep.

[00:37:19] Yep.

[00:37:19] Yeah, because we've even seen mergers where, you know, two, three, even four companies will come together and merge.

[00:37:25] And then they might decide to actually run together for a period of time.

[00:37:29] And you can do a tax free merger.

[00:37:32] Now there's going to be some legal costs involved in order to do that.

[00:37:36] And like, we assist with mergers as well, where we value each of the companies to help figure out what that cap table should look like, so that everyone's kind of, you know, getting fairly treated for what they're bringing to the table and then on a go forward basis.

[00:37:49] But really, we've seen that work as a strategy as well, if you want to actually run and operate for say, two to five years at that combined entity size, and really position yourself to be more of a platform size versus, you know, just being kind of tucked into an existing, you know, PE backed MSP.

[00:38:06] Interesting.

[00:38:08] Any of this change from the SaaS company view, right?

[00:38:12] Are SaaS companies still being largely viewed on their gross reoccurring annual revenue rather than the EBITDA?

[00:38:21] Or are they still looking at both?

[00:38:22] Or do they, you know, lean into one versus the other?

[00:38:25] Because pre-2021, EBITDA, it's not like they didn't pay attention to it, but you could be in the red as a SaaS company and still get really good multiples

[00:38:33] because your annual reoccurring revenue was just crushing, right?

[00:38:38] Yep.

[00:38:39] I know then, you know, once the market shifted a little bit, they're like, yeah, yeah, we want to make sure that you're financially stable.

[00:38:46] And maybe they dug a little bit into it.

[00:38:48] Has that needle changed at all?

[00:38:50] Honestly, I would say they're still looking at revenue.

[00:38:54] But again, it's a case-by-case basis when you're looking at EBITDA and whether or not there is cash flow there to be, you know, kind of flow up to whoever's purchasing it.

[00:39:03] Because every PE group and every buyer has their own kind of ROI calculator on what they're looking at and what they believe they can optimize from that standpoint.

[00:39:11] So, as you're mentioning, a SaaS company has much lower margins and thus has much lower EBITDA generally than what an MSP can provide.

[00:39:22] And so, because of that, we're seeing kind of a two-fold analysis.

[00:39:26] It's one, percentage of revenue, like how much revenue are we getting?

[00:39:30] But then two, percentage of projected EBITDA, projected EBITDA multiple of like, yeah, they might be at 3% right now, but we actually think we can get it to 7%.

[00:39:40] And if we can get it to 7% on 20 million or whatever the number is, that's a much higher number.

[00:39:47] So, we're actually willing to pay a little bit of a premium on what appears to be a premium on, you know, a 3% EBITDA.

[00:39:54] But it's only because we know we can get 7% or we can get 10% in some cases.

[00:39:58] So, along this line, I keep hearing, you know, for the people who live in this space and you clearly would know more than I do, you know, rule 40.

[00:40:07] You know, but hold on, 40% from an EBITDA standpoint or 40% from a growth standpoint?

[00:40:15] Like, you can get to 40 a lot of different ways, right?

[00:40:18] So, like, maybe you can explain that for the listeners.

[00:40:20] What exactly does that mean?

[00:40:22] And maybe the two different directions or maybe there's other directions, but like, that's what I've been hearing a lot.

[00:40:27] Totally. So, rule of 40, it's your year-over-year growth rate plus your EBITDA as a percentage of revenue.

[00:40:33] And you add those two percentages together.

[00:40:35] And how the rule goes is only 5% of companies can actually sustain a rule of 40 between those two numbers on a year-over-year basis.

[00:40:45] So, like, when we're reviewing companies, we review the rule of 40 on a three-year average.

[00:40:49] What's your three-year average growth rate?

[00:40:51] What's your three-year average EBITDA?

[00:40:52] Now, obviously, as a company, you can internally look at your rule of 40 score on a year-over-year basis and just kind of track towards it.

[00:40:59] The hard part with the rule of 40 is I view it like a teeter-totter.

[00:41:02] And revenue and EBITDA have an inverse relationship to one another.

[00:41:06] And it typically falls on the expense of sales and marketing.

[00:41:10] To the extent you have more sales and marketing expense, well, that typically drives EBITDA down, but it drives revenue up because you're trying to have high growth.

[00:41:17] Well, if then you're not investing in sales and marketing, well, maybe you're having more stagnant growth and you have high EBITDA because you have high profit.

[00:41:24] And so, for a company, you really want to try and find that natural inflection point of what is the right amount of sales and marketing spend that I can incur to then ensure I'm still hitting both metrics.

[00:41:35] So, as a general rule of thumb, we typically see companies spend between 5% and 10% of revenue on their sales and marketing expenditures.

[00:41:43] And you want to at least be getting that same percentage spend in growth rate from new labels, net of losses from a growth rate perspective.

[00:41:57] So, let's say you spend 10% on sales and marketing.

[00:42:00] You want to make sure you're getting at least 10% in new labels, net of losses on an annual basis because then how do you hit 20% in revenue growth?

[00:42:08] Well, the other 10% is comprised by growing your existing customer base.

[00:42:12] So, that's cross-sell, up-sell, that's price increases, that's new seats or additional seats for your growing customers and really picking out that right customer base that is growing so that in turn also feeds your growth rate.

[00:42:24] So, there's so many companies I talk to that say, well, Greg, how do I hit a 20% growth rate year over year?

[00:42:31] And it's like, well, 20% on new labels is really hard, but don't make that your goal.

[00:42:36] Make your goal 5% to 10% in new labels, especially because your sales spend is only 5%.

[00:42:40] Make the other 10% to 15% be your existing customer base.

[00:42:44] And if companies focused more on growing their existing customer base through cross-sell, up-sell, right-sizing the price on their existing contracts,

[00:42:53] and having growing customers that are continuously adding seats, they wouldn't have to worry about new labels as much because majority of their growth would actually come from inside versus externally.

[00:43:04] Okay. And when you say new labels, you're talking about new customers or in sales, they say new logos.

[00:43:09] Yeah, new logos. Correct. Yep.

[00:43:11] Awesome.

[00:43:13] I heard a clip from our buddy, Mr. Wonderful from Shark Tank a week and a half ago.

[00:43:17] He said, problem with businesses and why they end up being successful or not successful is their cost of new customer acquisition outweighs the lifetime customer value of the same customer, of the same logo.

[00:43:32] So can you expand on that a little bit more?

[00:43:35] I don't think people understand.

[00:43:36] Like, I actually, I call this a, you know, cost of customer acquisition, cost of, you know, lifetime customer value, annual recurring revenue growth, churn percentage, right?

[00:43:49] These are metrics that you hear a lot of investors talk about a lot.

[00:43:54] I label these as Shark Tank analytics.

[00:43:57] I know it's cheeky, but like, this is what these metrics are in and above some of the stuff you're talking about, tax percentages, EBITDA, right?

[00:44:06] All these other things, like why these metrics are being talked about and why do they, why do they make sense?

[00:44:13] Well, it's, it's really kind of, it's a way to measure verticalization.

[00:44:17] It's a way to measure go-to-market strategy.

[00:44:19] It's a way to measure your success rate and true profitability on what your sales team is bringing in the door because no two, no two customers, no two new logos are the same.

[00:44:30] And so it's important as an owner to evaluate your existing customers and the profitability on each of your accounts, you know, consistently, whether that's monthly, quarterly, or annually for you and your business, that's for, you know, you to decide what, what cadence makes the most sense.

[00:44:46] But we've seen in some extreme cases where there was one deal we worked on where 15% of the customers, when we did that analysis with the seller, were actually losing money.

[00:44:57] When you look at the amount of time that was spent on their account relative to the fees that they were charging.

[00:45:01] And so again, going to that shark tank analysis, you would say, well, they were hemorrhaging money relative to the sales expense that they spent to bring that customer in.

[00:45:11] And then what were they actually rendering from a profit standpoint on those customers?

[00:45:15] And what they found was those were a lot of their legacy customers that had kind of, you know, hung on for a long time.

[00:45:21] They never really did the proper price adjustments, or at least they were doing three to 5%, but three to 5% on a small number when it was, you know, they charged only $115 for a seat per seat back in the day.

[00:45:32] And now it's maybe up to 130, but everyone else that knew new logos are 180.

[00:45:37] They haven't actually done that catch up to get them right sized.

[00:45:41] And so a lot of the issues we typically see are on the existing customer side.

[00:45:46] On the new customer side where we run it, where we've seen issues is you're, you're reaching and you don't actually have a strategy on who do you want to service.

[00:45:53] So it's important when you're setting your sales and marketing plan, you want to come up with, maybe you're not super verticalized where you're, it's like, there's only one industry that I service, whether that's accounting or law or whatever the type of, you know, customer base you're focusing on.

[00:46:07] But maybe it is trying to hone it into two or three that it's like, okay, we've never serviced a senior living home.

[00:46:13] Maybe don't try to bring in a senior living home because you're probably not going to make money on that engagement if it's something outside of your, your fastball.

[00:46:22] So, you know, taking a step back as a leadership team, understanding what are you really good at?

[00:46:27] What are your strengths and playing to those in the marketplace helps all those analysts because they basically take care of themselves if you're only bringing the right customers to the table.

[00:46:35] So, you know, in a nutshell, the lower you can get your cost of customer acquisition, right?

[00:46:43] How much money do you spend in sales marketing and time to go from prospect to customer?

[00:46:48] Yep.

[00:46:48] And the higher you can get your average customer's lifetime value.

[00:46:54] Those two directional points pointers make a big difference.

[00:46:58] 100%.

[00:46:59] And I'm a big believer.

[00:47:02] I'm not very cost conscious.

[00:47:05] What I mean by that, I'm not looking to sit there and try to shave costs all the time.

[00:47:09] I'm always looking at how can I derive the most value.

[00:47:12] And so when I'm looking at that customer acquisition, there is a certain cost to be paid to go out and have the right sales team and to do the right marketing in the right spaces to get the right customer base.

[00:47:23] But it's important when you're really looking at what is that return I'm going to get on the customer.

[00:47:28] So that's where I would encourage, you know, companies to really focus on the return that they're getting back, that profitability that they're getting back versus the expenditure.

[00:47:37] Because the expenditure, if done properly with the right return is an investment.

[00:47:41] The expenditure where this gets upside down is you're not focused on the return.

[00:47:45] And now all of a sudden your expenses are outweighing the return because you haven't actually thought out or thought through that return profit.

[00:47:53] Yeah. So another thing is there's there's an other there's another piece that I kind of breezed over that fits right into this conversation.

[00:48:03] Turn, turn calculation. Right.

[00:48:06] Like, you know, when they say, hey, if you can grow your annual recurring revenue, 40 percent or more, and if you can keep your annual recurring loss, 5 percent or less.

[00:48:16] And customer cancellation, shrinkage, whatever else goes into your revenue going down. Right.

[00:48:24] Those two metrics, usually you're in a you're in a good position financially. Right.

[00:48:30] Yep. Yeah. We would say a best in class MSP would experience a churn rate of between 90 and 90, 90 to 95 percent customer retention.

[00:48:39] So that means that churn rate is only between 5 and 10 percent on over the past three years.

[00:48:44] We don't do that analysis of much on a year by year basis.

[00:48:47] It's looking over a three year sample size because you don't want to necessarily have 5 to 10 percent turnover every year.

[00:48:51] But what you want to see is you actually do want to see some degree of churn.

[00:48:55] It's actually a risk factor when we see no churn over a three year period, because it could not always,

[00:49:02] but it could be presenting that the owner or the company is really holding on to customers that they really should part ways with because they're not profitable

[00:49:12] and they're not willing to part ways with it because they're trying to hold on to as much revenue as possible.

[00:49:17] And no, you know, as we kind of talked about with kind of the return on going out and getting new customers,

[00:49:22] no two customers render the same profitability or the same revenue.

[00:49:27] And so it is, again, important to assess that profitability and part ways with the customers that just don't no longer make sense.

[00:49:34] They're not aligned with the direction in which you're heading.

[00:49:37] And that is OK.

[00:49:38] It is better for you to dip in revenue and increase profitability than to grow revenue at a decreased profitable percentage.

[00:49:48] OK, here we go.

[00:49:50] This is and these are the things that people need to understand, right?

[00:49:53] Like, you know, a lot of people are like busy in the day to day operation of their company, but like to what end?

[00:49:59] Right.

[00:49:59] So like just bringing on a customer doesn't necessarily help you.

[00:50:04] No.

[00:50:05] It may look in the short term like you're going to put more dollars in your bank account,

[00:50:08] but you could negatively impact the value of the entire business as a result.

[00:50:12] Yep.

[00:50:13] I mean, when we do our valuations, we look at both revenue multiple and EBITDA multiple.

[00:50:17] But it's like you talk to buyers in the space there.

[00:50:20] I mean, revenue is a component.

[00:50:23] Don't get me wrong.

[00:50:23] But like everyone circles back to EBITDA.

[00:50:26] They look to the profitability of the business.

[00:50:28] Right.

[00:50:29] So profitability is is king.

[00:50:32] So what how do you assess profitability within your business?

[00:50:35] Well, you start from the top.

[00:50:36] You make sure that your pricing is right.

[00:50:38] You make sure your margins are right, because if your pricing and margins are right,

[00:50:42] if you're hitting a gross margin percentage between 45 and 55 percent, you're going to

[00:50:47] have really great EBITDA because on average, your overhead expenditures are only going to

[00:50:52] make up between 20 and 30 percent of your revenue.

[00:50:56] And so if you're only spending at most 30 percent of your revenue on overhead expenditures,

[00:51:00] if I hit a gross margin of 50 percent, I'm in I'm inherently creating a 20 percent EBITDA

[00:51:06] company, you know, because you're not going to have more than that 30 percent or at least

[00:51:10] you shouldn't.

[00:51:11] If you do, then that needs to be right sized as well.

[00:51:13] But that's just kind of the general rule that focus on the top of that income statement

[00:51:18] versus the cost cutting on the bottom.

[00:51:20] And EBITDA will take care of itself.

[00:51:22] Interesting.

[00:51:23] So it's needless to say, it's important to understand a couple of things when we're

[00:51:27] talking about this industry.

[00:51:28] One, your numbers to where the rest of the industry is going in a like period by period

[00:51:35] basis, because if you don't know what's happening around you, you don't understand how

[00:51:39] to run your business.

[00:51:39] So that's number two.

[00:51:40] Number three, tax implications.

[00:51:42] Right.

[00:51:43] Like, you know, why pay more to the government if you don't have to write like not just today,

[00:51:49] but if you do decide to do something later on, what is that final number look like to

[00:51:54] you?

[00:51:54] Because you could have done things ahead of time to offset or change or or or or, you

[00:52:01] know, de-risk yourself in a tax liability standpoint, which, by the way, is not a small topic.

[00:52:06] Like, you know, like there's a whole specialty there, which seems like that's what you're good

[00:52:10] at.

[00:52:12] And then just generally speaking, right?

[00:52:14] Like people usually don't go to figure out what the value of their company is until they're

[00:52:20] thinking about an event.

[00:52:21] However, if they understand what that is as they're going along, it's information that

[00:52:27] lets them pivot in real time.

[00:52:30] Right.

[00:52:31] And so tell us, you know, while we have a little bit of time here on the end, how does

[00:52:35] the valuation as a service program work?

[00:52:38] And then also the tax part of it that you're offering as like a sub specialty also?

[00:52:44] Just a little bit about that also.

[00:52:46] Absolutely.

[00:52:47] So valuation as a service we launched here in 2024.

[00:52:50] It was one of my big initiatives when I got brought on to IT valuation 16 months ago was

[00:52:55] to get this program launched and really make it more of a business transformation tool than

[00:53:02] a valuation tool.

[00:53:04] And what I mean by that is we wanted to provide business owners with real time like valuations

[00:53:11] and risk factors and metrics and scores, and then provide them that quarterly touch point

[00:53:17] with us of what we're seeing in the marketplace of what we're seeing are the most valuable aspects

[00:53:22] or most valuable things have in their business.

[00:53:23] And then we can kind of advise them on, Hey, do these two or three things over the next

[00:53:28] six, 12 months.

[00:53:29] And you could potentially see this X return in your business.

[00:53:33] So now it's, it's more involved and more guiding than say like another dashboard that

[00:53:39] you might have that gives you all that information, but you don't know what to do with it.

[00:53:43] There's actually actionable steps that you get to take to say, okay, if I do this, what

[00:53:48] return am I going to see on my value?

[00:53:50] What are those most important things for me to do?

[00:53:53] Because there's always things for you to work on in your business.

[00:53:55] There's never a shortage of them, but to have someone actually walk you through and say,

[00:53:59] here are the two or three things that you should be doing and that are going to derive the most

[00:54:03] value out of your business and tell you that you're on that inflection point of doubling

[00:54:07] your value from 7 million to 14 million by just doing these two things like that.

[00:54:11] That piece of advice is just invaluable depending on your circumstances.

[00:54:15] Now, there's a lot of people that they're so far off from selling and they don't have

[00:54:20] time to really dive into this, that maybe it's not a right fit for them to be looking

[00:54:24] at this because really who this is tailored for is someone who wants to be working on the

[00:54:29] business versus in the business.

[00:54:31] So if you're ready to work on your business to really focus on growing in value, focus

[00:54:36] on creating good best practices and policies and operational maturity, then this is the

[00:54:42] type of program for you at a $700 a month clip.

[00:54:45] We walk you through four quarterly valuations over the course of the year.

[00:54:50] You get a dashboard that shows you your 24 different risk factors and what all went into

[00:54:54] the calculating that value.

[00:54:55] And then that quarterly touch point of going through, here's what you should be doing differently

[00:55:00] in your business to derive more value.

[00:55:02] And so what then got spun out of that was IT Tax Advisors, which is a kind of retainer

[00:55:08] model, project-based model tax firm, tax consulting, compliance, advisory services firm where

[00:55:16] almost every conversation I was having with businesses around value started layering in

[00:55:21] tax questions around, well, what should I be doing differently from a tax standpoint?

[00:55:24] Should I be a different entity?

[00:55:26] What if I want to add equity involvement or ownership to my existing leadership team or

[00:55:33] whatnot?

[00:55:34] And so all these questions started coming up and we launched IT Tax Advisors to really be

[00:55:38] more of that consulting, forward-looking kind of tax advisor firm for the MSP space that

[00:55:46] maybe they're not necessarily getting from their current CPA who is doing a great job of providing

[00:55:51] a tax return for them, but they're not necessarily getting that advisement or that guidance around

[00:55:57] what they should be doing differently.

[00:55:59] And with our ears to the ground from an M&A standpoint, we can really help put together

[00:56:03] a tax strategy and a tax plan that is congruent with both your personal wealth and business

[00:56:09] wealth targets and goals, as well as what's going on in the industry and the market so that

[00:56:14] you're fully aligned when you eventually transact in the future.

[00:56:18] Difference between I'm serving everyone generally versus I know this industry intimately and I

[00:56:25] can give you the next level stats kind of thing.

[00:56:27] I like it.

[00:56:28] I like it.

[00:56:29] Where do people get more information about both roads here?

[00:56:32] Is it all at IT Valuations website?

[00:56:35] Yep, ITValuations.com.

[00:56:36] We've got both services on there.

[00:56:38] There's a link at the bottom where you can contact us and I'd be happy to chat with anyone

[00:56:41] who's interested.

[00:56:42] Awesome.

[00:56:43] There are a lot of good information in this session, man.

[00:56:45] We're going to put this out into the world, but you know what?

[00:56:49] I hate to tell you folks, a lot of people came from the IT background.

[00:56:53] Math and finance and stock tickers are not your thing.

[00:56:57] Maybe you bought some Bitcoin and you're happy right now because it's like some stupid

[00:56:59] number.

[00:57:02] Good to really get a better understanding of what you have and at least understand where

[00:57:09] you want to go with it.

[00:57:10] If it's a lifestyle thing, fine.

[00:57:11] At least you know what it's worth as it stands today.

[00:57:15] And then by the way, tax return is great, but having a tax plan sounds like it's different.

[00:57:24] So I would want to have a plan.

[00:57:27] Nobody wants to pay more.

[00:57:28] I think we can all agree with that.

[00:57:29] But I think it's a couple extra layers on top of that, right?

[00:57:34] That's worth talking about.

[00:57:35] So itevaluations.com, Greg, it was great meeting you, buddy.

[00:57:39] Hopefully next time I talk to you, both of our temperatures are a little bit warmer,

[00:57:44] but enjoy the holidays.

[00:57:45] Looking forward to 2025.

[00:57:47] Tell your buddy Reed Warren over there, I said, what's up?

[00:57:52] And if you're Vikings over there, could be Vikings, Eagles, Lions, I don't know.

[00:57:58] Somebody's got to take the first seed here in the NFC.

[00:58:02] Yeah.

[00:58:02] Well, thank you so much for having me, George.

[00:58:04] Have a Merry Christmas, Happy New Year, and thanks for having me.

[00:58:06] And yeah, look forward to working with you in the future.

[00:58:09] Cheers, my friend.

[00:58:09] Have a good one, guys.

[00:58:10] Have a great one, everyone.

[00:58:11] This was recorded.

[00:58:12] You'll find it at mspinitiative.com.

[00:58:13] Have a good one.

[00:58:14] See ya.

[00:58:14] Thank you.