MSP Acquisition Financing: Test Cash Before You Bid

Separate the Purchase Price From the Cash You Need

Completion is the point at which the agreed purchase takes effect under the transaction documents. Build a schedule around that event, using the scope your advisers have confirmed. Buying a client book and buying an operating company need separate schedules because the assets and obligations being acquired can differ.

Start with the consideration, meaning the payments or other value promised for the purchase. Separate what is due at completion from anything due later. Then add transaction costs and the transition spending your delivery team has estimated, placing each payment when you expect it to leave the bank.

Keep the existing MSP's operating forecast beside that purchase schedule. Cash already needed for its commitments isn't spare acquisition money. My preference is to show the amount you intend to keep available for operations as an explicit decision, with an owner and a reason, rather than whatever remains after the price is entered.

Compare Funding by Its Conditions and Payment Dates

Buyer cash means money you can actually commit to this purchase. Lender funding means borrowing on the terms offered for this transaction. A seller note is the portion of the price the seller proposes to lend to you, with repayment terms that still need to be agreed.

Use written terms to complete the comparison below. An expression of interest from a lender belongs in an unresolved column until you have established what must happen before funds become available. Don't put the same amount into both the lender and seller rows because each conversation assumed the other party would fill the gap.

Ask the lender and transaction advisers to reconcile the arrangements together. Have them explain any proposed security, meaning assets or rights supporting the borrowing, and any personal guarantee, meaning a personal repayment obligation. Get advice on the actual wording before accepting either; a financing label doesn't tell you the exposure.

Keep an earn-out separate from a seller note. An earn-out makes a purchase payment depend on a defined future result; a seller note is borrowing. Have your advisers establish exactly what is payable in the proposed structure instead of assuming a deferred payment disappears when clients leave.

Build the Cash Bridge Before Testing Repayments

A cash bridge reconciles the opening bank balance with the closing balance through the receipts and payments in between. Use it for each period in your forecast. Make periods short enough to expose a payment coming due before the receipts meant to fund it.

The working is: opening cash + client receipts + confirmed funding − purchase payments − operating payments − financing payments = closing cash. Compare that closing cash with the operating amount you have decided to keep available. Use your actual payment schedule for principal, the amount borrowed that you must repay, and interest, the charge for borrowing.

For the hypothetical client, enter the $4,500 receipt in the period when you expect to collect it. If collection moves to a later period, move the receipt; don't move salaries merely to preserve the answer. Annual revenue remains $54,000 under the unchanged-fee assumption, but the earlier period has less cash available for its bills.

Build operating payments from the combined delivery plan. Include obligations you retain while moving the acquired clients onto your processes, and identify which costs genuinely end. Don't deduct the same payroll cost again as transition spending when the forecast already includes it; show any additional payment separately.

Debt service is the required principal and interest payment. Compare the cash schedule with that actual obligation rather than dividing the price by revenue. A rule of thumb has never met your payroll.

Cost the Transition With the People Doing It

Ryan Spillane recommends making time available in the owner and leadership team before an acquisition, including delegating existing work. I would put the resulting responsibilities into the delivery plan and ask who covers the work being handed away. The owner can't be the unexplained free resource that makes the financing case balance.

Ask delivery to distinguish work needed to keep clients supported from improvements you can schedule later. Record the cash consequence of each decision alongside the staff capacity it uses. Existing employees may perform transition work without another invoice, but their time still needs an assignment that fits around continuing service.

Matt Yesbeck describes a proposed buyer-and-seller dashboard with mutual milestone checks and customer communication before an escrow funding request. Escrow is an arrangement for a third party to hold funds until agreed conditions are met. His marketplace account also acknowledges that a customer may reject the transition; it doesn't establish that your clients will transfer or remain.

Use that distinction when requesting a funding date. Have the responsible adviser identify what evidence the transaction actually requires before money is released, and have delivery identify when support responsibilities start. A milestone marked complete in your own spreadsheet isn't a substitute for those confirmations.

Change the Receipts Before Changing the Verdict

Test the financing with a documented downside case as well as your expected case. Choose changes from the client records and the delivery assessment, rather than inventing a standard acquisition discount. Keep fixed commitments visible when you change receipts.

1. Finance moves a material client's collection to the later date being tested and recalculates closing cash in every affected period.
2. Delivery changes the transition estimate for the specific unresolved work and identifies any additional payment or displaced assignment.
3. The owner tests a delay in funding against the dates already promised, then takes any proposed timing change back to the lender and advisers.
4. Finance compares each resulting balance with the operating cash requirement and records what change to the bid would resolve a shortfall.

Keep the assumptions attached to the calculation. If the seller's work must continue after completion, establish its scope and cost instead of treating their departure as an automatic saving. The aim is recurring profitable business that can operate without depending on the former owner, rather than a payment schedule held together by their unpaid availability.

Bid Only Against a Reconciled Funding Plan

Before a bid, put the proposed purchase scope beside the funding terms and dated cash schedule. Ask your accountant or financial adviser to review the reconciliation, and ask transaction counsel to identify unresolved terms. An unresolved condition should stay visible in the bid decision; it shouldn't quietly become confirmed funding.

My view is to reduce or restructure the proposal when it consumes cash your existing clients need you to retain. If the only version that works assumes immediate collections and effortless transition work, the funding has not been tested. Agree the commitments you can carry before negotiating how attractive the headline price looks.