Question: If your IT services business was for sale today, would you enthusiastically want to buy it?
Last month I took pity on a guy running a small computer repair shop who private-messaged me on Facebook begging for help. Because I’m a sucker for someone in need of help, I took his call.
He was a very small MSP with two techs, nearing retirement, and wanted out of his business he’d been running for nearly 20 years, generating less than $300,000 a year. He was “tired of running it” (his words) but could not find anyone willing to buy the business for what he considered a fair price. The options he was given were as follows: One neighboring MPS offered to “buy” (in truth take over) the 2 contracts he had that were worth anything, forgetting the rest, and give him a percentage of the income over the next 2 years. Another offered to take over the business and pay him a percentage of the sales generated, PROVIDED he worked there servicing the accounts for 3 years. Another offered to “buy” his business for a fraction of the income.
My advice was simple: The BEST option would be to get in a time capsule, go back 10 or 20 years and build a profitable MSP that was worth selling. Since that’s not an option, his only choice now is to take one of the crappy offers and attempt to negotiate a slightly better deal, OR double down for the next 3 to 5 years, hustle his ass off building the business properly and THEN sell it. He was not thrilled about either option. I see Uber driver in his future.
This is a COMMON conversation I have at least once a month with some MSP who reaches out: they’re ready to stop working but have discovered their business isn’t worth anything. To make matters worse, they’re not financially sound enough to walk away. A TERRIBLE situation to be in when you’re older: pennies in your pocket, creditors calling, no reliable source of income, no assets and lacking the passion and energy of youth to get after it.
They’ve built themselves a JOB, not a business, and certainly not a sellable asset.
If you break down the IT services industry, roughly 80% of the MSPs/IT services companies are sub–$1 million in revenue, with most never generating more than $300,000 to $500,000 in sales per year. The wife is their bookkeeper, admin, office manager, etc., etc. They have 1 to 3 techs and have been in business for 10+ years. They’ve essentially been doing the same things, with the same clients, in roughly the same way for YEARS.
Even though their business card says “Owner,” they function as an employee – and an unmanaged, undisciplined one at that. They arrive and leave the office about the same time every day, do the same job, dealing with the same problems and the same roadblocks, never making any real progress, never making any real money. Over time, they might make small, incremental improvements. They hire a couple of techs to help. They offer some type of lower-level managed services and figure out how to get a few to buy. But what they DON’T do is wake up every day thinking about GROWTH. Or innovation. Or where their next big opportunity is. Or profits and sustainability. And they definitely don’t think in terms of building equity.
In some cases, this scenario may be perfectly okay – but let’s be clear: that owner-operator is NOT an entrepreneur. They’re the “tech with helpers” whose sole motivation is to be their own boss, not to become wealthy and build a sellable asset. All they have is a job with unpredictable income from unpredictable sources.
Again, it’s not for me to say that’s right or wrong. You ought to choose your own lot in life and define what success is for you. However, I would suggest you consciously CHOOSE and think beyond what works for you TODAY. What IS your exit strategy? What’s your financial plan?
If you have any intention, desire or need to someday sell your business and cash in the chips, then you need to carefully think about what you get up every day to accomplish. You’re either building equity or you’re not. You’re either building a valuable, stable, productive business or you’re maintaining a job. What will you choose?