7 Things to Do Before You Sell Your MSP

1.Know how much of your revenue is recurring

The first question anyone serious asks about an MSP is how much of your total revenue is recurring. It's the quickest read on whether you're a true MSP or a break-fix shop with a few agreements, and it's the first thing a buyer asks. Buyers pay more for contracted monthly revenue than for projects, hardware and pass-through licensing.⁷

Pull the last twelve months and split contracted recurring from everything else. Not what you'd like it to be. What it is.

One buyer-side advisor calls 70 to 75% solid.² Deals happen below that, but the higher the share, the better the multiple, and the shorter the list of things a buyer will want fixed first. In one recent survey, 46% of respondents put their company at 25% or less.¹

You're in good shape on this one if recurring is 70% of total revenue or more.

2.Find out what each agreement actually earns

Revenue per endpoint is only half the story. The other half is what it costs you to deliver it: the tool stack, the licenses, the subcontract and after-hours coverage, and the people who touch that client every month, technicians, service managers and the engineers who handle escalations. Put all of it against the agreement and you have your service gross margin.

In Service Leadership's 2024 data, the average managed services gross margin was about 46%,³ and best in class ran around 50% with the full cost of delivery counted.⁴ A lot of owners count labor somewhere else and think they're doing better than they are; ask a room of MSP owners what margin they run and the argument is usually about the definition.¹⁰

Three places the margin leaks: licenses you pay for that aren't on any invoice, agreements that haven't had a price increase since they were signed,¹¹¹² and tools nobody uses anymore. All three are fixable, and sooner than you'd think.

You're in good shape on this one if you can name your service gross margin by client, with delivery labor in the cost, and the number across all your agreements is in the mid-40s or better. That's a floor I use, not a buyer's pass mark.

3.Pay yourself what your replacement would cost

Owners who take home less than their senior engineers think they're being frugal. A buyer sees it differently. They're going to have to hire someone to do your job, so they adjust your salary up to market before they calculate profit.²⁷ Below-market owner pay doesn't make the business lean. It makes the profit look bigger than it really is, the buyer takes that back out, and the number you had in your head drops on the first call.

Pay yourself what you'd pay someone to run the company, as salary or guaranteed payments depending on how you're taxed (your tax advisor decides the form). Take distributions on top of that, intentionally, from cash the business can spare. Then look at what's left. That's the starting point for adjusted EBITDA, the number the multiple gets applied to; a buyer will add back one-time costs and personal expenses too, but owner pay is the big one.⁷ In Service Leadership's 2024 data, best in class ran 19% or better and the median was just over 9%.⁵

You're in good shape on this one if your pay is at market, your distributions are planned rather than pulled when you need them, and you can show your EBITDA margin with the adjustments written down.

4.Know which clients make you money, and how much one of them could hurt

Not every agreement is worth the same. Some clients eat a third of your hours for a tenth of your revenue. Some never call. Until you've looked at profit by client, you can't tell which agreements are priced right and which ones you're subsidizing.¹²

Then look at concentration. The common rule of thumb is that a buyer starts discounting when one client passes about 20% of revenue, though there's no universal line.⁶ I use a tighter screen: no single client over 15%, and your top five together under half of revenue.

You're in good shape on this one if you can rank your clients by profit, not revenue, no single client accounts for more than 15% of revenue, and your top five clients together account for less than half.

5.Keep the clients you have, and get them on your full stack

Ask an MSP owner what his biggest problem is and you'll usually hear leads. Usually there's a problem behind the problem. Before you go find new clients, answer two questions: how many of your current clients are on your full standard stack, and how long does a new one wait to be onboarded?

The first question usually reveals a sales funnel sitting inside your existing customer base: the security, backup and licensing you already support, sold to people who already trust you. It also makes delivery simpler, which a buyer notices. The second question tells you whether more leads would even help. If new clients sit in an onboarding queue for a quarter, more leads won't help until that clears.

Buyers read the same thing a different way. Client retention around 90% a year says the revenue is durable,⁶ and they'll look at revenue retention right beside it. Agreements with real terms, auto-renewal and notice periods say it's built to last.⁷ Whether those agreements can be assigned to a new owner is a question for your attorney, not your PSA.

You're in good shape on this one if you know your client retention rate, most clients are on your standard stack, and your agreements would hold up if someone else's name were on the door.

6.Get the cash in before the vendor bill goes out

Recurring revenue doesn't guarantee cash. It just makes the timing visible. On the managed services side, an MSP billed in advance on autopay should have almost nothing in receivables; projects and hardware are a separate conversation. If you're invoicing net 30 on monthly agreements and chasing checks, you've built a cash gap into a business that doesn't need one.⁸

The bigger trap is annual vendor commitments, and there are two separate problems inside it. If you pay the vendor annually and bill the client monthly, you're financing the gap yourself. And even on monthly billing, the commitment outlives the client: leave mid-term and you still owe the vendor the balance.⁹ Match the cycles where you can, and price the commitment into the agreement where you can't.

A buyer checks all of this under one heading: does profit show up in the bank? Days to collect, days of hardware sitting in the closet, and days until you pay vendors, taken together, tell them whether the business funds itself or runs on a line of credit. How much working capital stays in the business at closing is negotiated deal by deal, so get it visible now.

You're in good shape on this one if nearly all of your recurring revenue is on autopay, your vendor commitments line up with your client billing, and the line of credit rests at zero at some point every year.

7.The business should be able to operate for a month without you

The business has to work without the owner. Full stop. If every escalation, every renewal and every vendor login runs through you, a buyer either discounts the price or ties more of it to you staying on, and neither is why you'd sell.²¹²

Documentation is the MSP's advantage here. You already have a system for it. Put the business in it: who holds what, how a ticket moves, how a client is onboarded, how a renewal is priced.⁶ Then give your number two real authority and let him make a decision you'd have made differently. A buyer's diligence list runs longer than seven numbers, your security posture and your bench included, and this is where most of it starts.

You're in good shape on this one if you could disappear for thirty days and the clients wouldn't notice. Treat it as a drill, not a buyer's rule.

Where that leaves you

Add up the ones you'd check. It's not a score, and seven checks don't make a business healthy any more than three make it sick. What the count gives you is a short list with names on it, and that's the useful part: the next conversation, whether it's with your team or with an M&A advisor, starts from the gaps instead of from the whole business.

One honest note: none of this is a valuation. What your MSP is worth is what a buyer pays for it on the day it closes, and growth, size, specialization and the shape of the deal all move that number too. The seven above are the part you control from the inside, one at a time, before you need to.