Most MSP owners have a number in their head about what their business is worth.
Usually, it’s based on a story they heard from another owner, a whisper from a vendor, or the number they feel they “need” to retire.
None of those are valuation.
If you only start thinking about this when you’re ready to sell, you’re already on the back foot. As Daniel Welling puts it, it’s probably ‘the most important sale you’re going to make in your life’. If you treat it like a one-off event instead of a long‑term financial project, you’ll leave serious money on the table.
This isn’t just about exit. Running a finance‑literate MSP gives you better decisions, better margins, and more options.
You want a business a buyer would fight to own, even if you never sell it. Let’s break down how to do that.
Contents:
FREE Download: The MSP Valuation Playbook
The Most Important Sale You’ll Ever Make (And Why You’re Not Ready)
Most MSPs think exit is a future problem.
One day you wake up, decide you’re done, put the business up for sale, and move on. Simple.
That’s not how it actually works.
For most owners, selling their MSP is the biggest deal they’ll ever do. They’ve never done it before, there’s a lot of emotion tied up in it, and the stakes are high. Of course it feels uncomfortable.
As Daniel puts it:
- "It’s probably the most important sale you’re going to make of your life."
And you’re only likely to do it once.
That combination creates three problems:
- You don’t know what “normal” looks like in a deal
- You’re scared of doing the wrong thing for your team and family
- You avoid the topic until you’re forced to face it
M&A feels taboo for exactly those reasons. But the only way to de-risk it is to drag it out of the “someday” box and into your day-to-day thinking.
Exit shouldn’t be a secret dream, it should be a scenario you’re always financially ready for, even if you never use it.
Your MSP Valuation is Probably Wrong
The most common mistake? You anchor on what you want instead of what the market will pay.
Daniel puts it like this:
- “The first misconception or mistake of an inexperienced seller is going to market with the number that they need in mind, rather than a professional assessment of what it’s actually worth to someone.”
So you end up picking a number based on:
- What you think you “need” to retire
- What a mate says he got when he sold
- A flattering buyer pitch designed to win your attention
That’s like setting your SLAs based on the one client who never logs a ticket. It feels good, but it’s not reality.
To get closer to the truth, you have to strip the emotion out. Forget what you’ve sacrificed and “what you deserve”.
Then ask yourself, if this wasn’t my baby, and I just saw the numbers, the risk, clients and the systems – what would I honestly pay and how long would I accept for that money to come back?
That number is usually much lower than your dream figure but it’s much closer to what a serious buyer will actually offer.
Buyers Pay More for Organic Growth Than M&A
There’s a story MSPs like to tell themselves.
You’re either:
- A business that grows by buying other MSPs, or
- A business that grows by winning new customers
And you’re supposed to “pick a lane”.
That part isn’t totally wrong. But it misses the real issue.
The problem isn’t the idea. It’s trying to do both at the same time.
Running proper sales and marketing is hard. Buying other businesses is hard. Doing both together usually fails for very boring reasons:
Not enough cash, not enough time, and not enough people to run it all properly.
- “If you are going to deliberately grow organically, you need to build a sales organisation. It requires investments.”
Now imagine you also want to buy other MSPs.
That same money, time, and leadership focus has to stretch even further. Most MSPs just don’t have the depth to make that work in parallel.
But there’s a bigger issue buyers care about.
Let’s say there are two MSPs.
- Both do £3m in revenue
- Both are growing at 30%
- Both make the same profit
One got there by buying other MSPs, the other got there by winning new recurring customers.
On paper, they look identical but in reality, they’re not.
Buyers usually pay more for the one that grew organically.
Why? Because buying customers through acquisitions is expensive. Winning customers through a repeatable sales and marketing process is cheaper and more predictable.
Or as Daniel explains it:
- “The cost of acquiring a customer through M&A is higher than when it comes from a well-oiled organic growth machine.”
There’s also a momentum problem.
Acquisition-led growth often stops the moment you stop buying. No new deals, no growth. Unless there’s another cheque ready, everything slows down.
Organic growth doesn’t work like that.
If you can consistently market, sell, and retain customers, the growth keeps going. You’re not just buying contracts. You’re building a machine.
And from a buyer’s point of view, a business with a proven growth engine is worth more than a bundle of clients held together by past deals.
Because one can be scaled, the other has to be bought again.
Two Numbers That Decide Your Exit Price
When you strip away the jargon, buyers really care about two big numbers when they value your MSP:
- How much real profit the business makes after paying someone properly to do your job (normalised EBITDA)
- How much solid, monthly contract revenue you have from core services (core recurring revenue)
Daniel sums it up simply:
- “For an established MSP business, I’m looking at EBITDA, but I’m looking at EBITDA normalised, not just adjusted.”
Here’s what that means in plain English.
Adjusted EBITDA is your starting point. You take your profit and remove the owner perks and one‑off costs – things like your car, private benefits, or unusual expenses that won’t repeat.
Normalised EBITDA goes that one step further: it asks, “If we had to hire someone on the open market to do what you do, what would we really have to pay them?” You then plug that as a proper salary into the numbers.
This matters because lots of owners quietly underpay themselves. On paper, that makes the profit look bigger than it really is. Once you normalise for a fair salary, profit drops, and that lower number is the one a buyer will actually believe.
For smaller MSPs (under £1m revenue), Daniel adds a simpler second lens: your core managed services income.
You look at the money you bring in every month from true, high‑margin recurring services – support, security, backup, DR – and ignore low‑margin resale like Microsoft 365 licences. If it’s billed per user or device every month and carries roughly 50%+ gross margin, it counts as “core.”
As a rough rule of thumb, he often treats that core recurring line as being worth around one times its annual value.
Put it together with a simple example:
- Your MSP does £1m revenue
- Core recurring services are £400k a year
- Normalised EBITDA is £100k
If the market multiple for a business of that size is 4x EBITDA, that gives £400k. One times core recurring is also £400k. When both methods land in the same place, you’re in the right ballpark.
As you get bigger, normalised EBITDA and its multiple start to matter more. Private equity funds with a big pot of money don’t want to do ten tiny deals; they’d rather buy one larger, cleaner MSP. Fewer transactions, more EBITDA in one hit – and they’ll usually pay a higher multiple for that.
The Dashboard That Shows What Your MSP is Really Worth
The worst time to work out what your MSP is worth is the moment you decide you want out. By then, it’s too late to fix most of the real problems.
- “I think everyone should have a continual valuation of their business so that it’s possible to almost have it on a dashboard: using these metrics, this is what the business is worth today … and again next month, next year, and so on.”
The dashboard doesn’t need to be fancy. It just needs to surface the right levers. At a minimum, you want to see your normalised EBITDA every month (profit after you strip out shareholder perks and one‑offs and then put back realistic salaries for active owners) and your core recurring revenue run‑rate (what you’re billing per user or device for high‑margin services, excluding low‑margin resale like 365).
Once those two numbers are visible, you can apply real‑world ranges instead of fantasy. If you’re under £1M, sense‑check your value at around one times core recurring. As you grow, look at realistic EBITDA multiples being paid for MSPs your size in your market and see where you actually land, not where you hope to land.
The real power comes from tracking movement. Is normalised EBITDA growing as a percentage of revenue? Is core recurring climbing faster than projects and product? Is your revenue becoming less concentrated around one or two clients, or more?
Answer those questions every month and you’ll know whether your hiring, tooling, and pricing decisions are increasing or eroding the value of the asset you’re building. Sophisticated buyers will run this analysis on you anyway. Your job is to be doing it long before they show up.
Always Be Due-Diligence Ready
When deals fall apart, it’s rarely just about price. It’s when a buyer looks under the hood and finds chaos: missing contracts, messy numbers, vague reports, and no clear picture of what they’re actually buying.
- “If you can’t provide that sort of information, then what else don’t they know about their business?”
It’s not that the seller is hiding anything, often they genuinely don’t know. But to a buyer, that’s still risk.
The fix is simple, but not easy: run your MSP as if you’re always in due diligence.
In a real transaction you’ll be asked to populate a “data room” – a single, organised place containing everything a buyer needs to review. Instead of scrambling to build that in the three most stressful months of your career, you can build and maintain it as you go.
At a minimum, that means:
- All client, staff, and supplier contracts stored centrally, signed, and searchable.
- A clean client list showing who you serve, where they are, what sector they’re in, how many users/seats they have, and exactly what services they buy from you.
- Monthly management accounts – profit and loss and balance sheet – going back at least three years, using a chart of accounts that actually reflects how an MSP makes money (support vs licences vs projects, etc.).
- If you run leadership or board meetings, basic minutes and packs filed each month so a buyer can see how you think and manage.
Layer on top some ongoing monitoring of client health, simple credit checks or payment behaviour tracking so you know which h accounts are at risk financially, not just technically. That protects you whether you’re selling or not.
This isn’t just compliance theatre. It’s positioning. Put yourself in a buyer’s shoes: one MSP can only show statutory accounts with a single “sales” line; another has MSP‑specific reporting with clear categories and history. You’re going to spend your time on the second one.
Trust, Terms, and Legal Reality
Even with strong numbers, good intent, and a willing buyer, deals still blow up.
We’ve seen transactions stall at every stage: some never make it to heads of terms, others agree heads and then fall apart before completion.
On paper, it often looks like a technical dispute – a clause here, a payment mechanism there. In reality, those details usually expose a deeper problem: the two sides don’t really trust each other.
One deal Daniel worked on fell over around a seemingly minor point on how the payment would be structured. The issue wasn’t the math, it was that the discussion surfaced an underlying trust issue that hadn’t been addressed earlier. Once that crack appeared, every new legal comment widened it.
This is where lawyers and accountants can unintentionally make things worse. They’re paid to reduce risk, not get the deal done. Left unchecked, two advisory teams emailing back and forth can derail what started as a fair, well‑intentioned agreement between entrepreneurs.
There are two big safeguards.
Firstly, don’t rush your heads of terms. Treat it as a clear, plain‑English summary of everything you’ve actually agreed: price, structure, earn‑out, your role, key risks, payment mechanics.
- “My top tip is not to rush your heads of terms. The more thorough and complete it is, the less chance you’ve got of something coming out later on.”
It’s not a legal contract, but it is the brief your lawyers will work from. If it’s vague, expect trouble.
Secondly, keep direct communication open between buyer and seller. Use your advisors as support, not as a human firewall. Get on calls, meet in person, and jointly instruct your solicitors instead of letting them negotiate the relationship for you. When two reasonable people stay talking, most issues stay solvable.
And finally, on the scary‑looking clauses – warranties, tax indemnities, long tails, remember they’re just tools for sharing risk. When Daniel pushed back on one such warranty, his solicitor pointed out he could probably get it removed “if you reduce the price.” In other words, if you want less risk, expect less money. If you want more money, accept more risk.
Risk and price are two sides of the same coin. The deal only works when everyone is honest about that.
How Risk Changes Your Price (And Your Freedom After Exit)
Every serious buyer is running the same mental calculation: how risky is this business, and how do we protect ourselves if things change?
The more risk they see, the more they’ll push for a lower price, a longer earn‑out, tighter warranties, and more of your time locked in after completion. You don’t have to like that, but you do need to understand it.
Client concentration is one of the biggest red flags. If a single customer makes up a big chunk of your revenue, you’ve effectively hitched your exit to their renewal.
- “If you’ve a client that’s even over 5%, to be honest that’s still quite a chunk. If that client disappears, the economics of the deal changes overnight.”
Buyers will price that in. They’ll often move more of your consideration into deferred or performance‑based buckets. In those structures, part of what you’re “owed” only gets paid if key clients stick around or certain revenue and profit targets are hit. Uncomfortable, but logical, if the thing they bought turns out to be smaller, they expect to pay less.
The upside is that this can work both ways. If the buyer manages to grow the business significantly during the earn‑out, and the deal is structured sensibly, you can share in that upside as well. Performance mechanisms aren’t always a punishment; handled correctly, they can be a second bite at the cherry.
Your own role after the sale sits in the same risk bucket. At a minimum, you should expect to do a proper handover. In Daniel’s case, that was a defined number of days over roughly three months. In other deals, owners have stayed on for one to two years in leadership or advisory positions.
From a buyer’s perspective the rule is simple: if the seller is willing to stay and help, risk goes down.
- “Generally, if you are staying around, that immediately de‑risks it for the buyer. Anyone that’s wanting to go and go quickly, that’s a risk.”
If you want a clean, fast break, you’ll likely pay for that in price and in how much is paid up front. If you’re willing to stick around and help land the plane, you can often negotiate better terms.
The key is to decide what you actually want early, so you’re not trying to renegotiate your own involvement halfway through the process.
Habits That Drive Valuation
You don’t control what the market is paying this year. You do control how clean, credible, and attractive your business looks when someone serious lifts the bonnet.
That comes down to habits, not heroics.
- Normalise your numbers every month. Don’t wait for a buyer’s accountant to do the ugly version for you. Treat yourself as the acquirer and calculate normalised EBITDA as if you were buying this thing tomorrow: strip out perks and one‑offs, add back realistic salaries for any owner‑operators, and live with the real profit number.
- Clean up your revenue picture. Separate high‑margin recurring services from low‑margin resale and projects. When you can show exactly what you bill for support, security, backup, and Office 365, it becomes obvious where the value sits, and where it doesn’t. Buyers love clarity. Sloppy sales lines make them nervous.
- Run proper management accounts and reviews. Monthly P&L and balance sheet, same format, same cadence, with someone actually reading and acting on them. That alone signals maturity. It shows that you are on top of and in good command of your business, which is exactly what a buyer wants to see.
Add to that a basic handle on how your clients and staff actually feel. Simple NPS or satisfaction surveys, done regularly, give you early warning of churn risk and cultural issues. They also give a buyer something concrete to look at when they inevitably ask for references.
Finally, don’t leave legal learning until the term sheet lands. Get familiar now with what “normal” looks like for shareholder agreements, warranties, and standard M&A terms in your region. You don’t need to be a lawyer, but you do need enough context that you’re not panicking over clauses that are just standard risk‑sharing.
- “The market needs to educate itself on consuming content and listening to people that have already been through the process.”
The owners who will get the best exits aren’t the ones who wait for a buyers email. They’re the ones who quietly start acting like sellers years before they ever decide to sell.
FREE Download: The MSP Valuation Playbook
-
Stop Guessing Your Exit Number
Find out how buyers actually calculate value, so you stop building around fantasy figures and start building around what someone will really pay. -
Focus on the Two Numbers That Actually Matter
Valuations aren’t magic. They come down to normalised EBITDA and core recurring revenue. If you don’t know yours clearly, you’re flying blind. -
Build an MSP That’s Always Sale-Ready
Learn how to track valuation monthly, reduce risk, clean up your numbers, and operate like you're in due diligence every day.
scaleUP Podcast: Listen to the Full Episode
This blog only scratches the surface of what Daniel Welling shared about MSP finance, valuation, and M&A.
If you want the full picture, including:
- How to think about buy‑and‑hold models like Evergreen vs traditional private equity roll‑ups
- Real‑world examples of MSP deals that fell over (and exactly why)
- Practical steps for building your valuation dashboard and running “data‑room ready” all year round
Listen to the full scaleUP episode below:
