When Buying an MSP, Price the Book From Retained Cash

Define the Revenue and Obligations You Would Acquire

Separate a client-book purchase from buying the whole operating business. Identify the agreements, relationships, assets, staff, vendor commitments, and other obligations included in the proposed transaction. Have the legal and financial owners establish what transfers and what approvals or conditions apply.

Establish the purchase scope with the legal and financial reviewers before assigning value to a client list.

Reconcile recurring fees to agreements, invoices, credits, and collections. Separate managed fees from recurring product and separately billed projects or equipment. A recurring invoice label does not establish that the same revenue and margin will continue after the handoff.

Build a Delivery Case at Your Costs

For a hypothetical book matching the model's managed-client example, assume 35 clients each paying $4,500 monthly. Hold fees and client counts constant for the initial screen. The arithmetic is 35 times $4,500, or $157,500 MRR, and $1,890,000 annual managed revenue.

Use the model's 50% fully loaded managed-service margin as a target to test, including burdened delivery labor and tools. At that assumed margin, annual gross profit would be $945,000. This is a screen based on a chosen margin, not a finding about the seller's book or your delivery costs.

Replace the assumed cost with a staffing and tool forecast built from the acquired work. Include account work, coverage, and any required additional roles alongside the desk. If a new client load requires another whole person, cost that person rather than treating every added seat as a smooth fractional expense.

Keep costs you retain visible when clients leave. Losing fees does not automatically remove a matching share of salaries or vendor commitments. Recalculate the team and contracts required in each retention case before accepting the same margin throughout the forecast.

Use Retention to Change the Revenue Schedule

The model uses 95% annual retention as a planning assumption. Verify the seller's actual record and define whether you are measuring retained clients or retained revenue. Those measures can differ when account sizes differ.

For this equal-fee hypothetical, suppose 95% of the starting MRR remains at year-end, with no price changes or expansion. Multiply $157,500 by 0.95 to obtain $149,625 of year-end MRR. Multiplying that by 12 gives a $1,795,500 annualized revenue run rate at that point.

The annualized year-end figure is not the cash collected during the first year. The timing of departures and client payments changes that result. Put the expected changes into the periods when they occur, then recalculate costs for the remaining work.

Test the loss of a material account separately from the blended retention assumption. Use that account's actual fee, workload, and related commitments. A portfolio average cannot tell you what a particular departure would do to payroll, capacity, or receipts.

Keep Gross Profit Separate From Acquisition Earnings

Deduct the added operating costs needed to carry the book after delivery costs. Include the management and administrative work the buyer must provide. If the seller currently performs work that someone must replace, give that work a cost rather than calling the departing salary an automatic saving.

Have the financial reviewer establish which earnings are repeatable and which proposed adjustments are supported. A revenue schedule alone cannot do that job.

The model's whole US business earns $730,276 of EBITDA, meaning earnings before interest, taxes, depreciation, and amortization, after a fair-market owner salary. It also includes product, hardware, and project revenue and their costs. That is a different calculation from the acquired managed-fee book's hypothetical $945,000 of gross profit.

Use the model's dated EBITDA multiple curve only on an appropriate earnings basis. It uses iTValuations' 2025 assumptions and calls for yearly review. Applying that whole-company multiple to client-book gross profit would mix the asset being bought and the earnings being valued.

Price the Transition Before Testing the Offer

Build a transition plan with the people who will do the work. Record discovery, documentation, tool changes, client communication, and any remediation required to deliver the agreed service. Put the associated payments and labor into the forecast rather than hiding them inside the purchase price.

The model budgets 60 project-engineer hours for onboarding a new managed client. Use that as a planning reference, not an instruction to multiply it blindly across an acquisition. Establish what the acquired clients actually require and what the delivery team can schedule.

Keep transition spending separate from the ongoing earnings case. A one-time cost still needs cash even when it is excluded from a normalized annual earnings figure. Record its payment date and the person responsible for the estimate.

Work Back to an Offer You Can Fund

For each candidate price, set out the acquisition payment schedule beside the expected client collections and operating payments. Add the transition costs and the actual financing terms being considered. Keep financing cash flows distinct from operating earnings so the funding plan can be checked separately.

Judge the cash left against your required return, funding limits, and continuing obligations. Those are buyer-specific inputs to choose and justify, not missing numbers to fill with an invented industry rule. Vary the candidate price and terms to find the range that meets them under the retention and delivery cases you can support.

If part of the payment depends on future results, have the advisers define the measure, records, period, and treatment of changes. Don't count that arrangement as eliminating retention risk. Test what you would owe and what cash would remain under the actual proposed terms.

Bring the offer decision a reconciled revenue base, a costed delivery plan, a dated transition budget, and the cash forecast for the proposed payments. Mark unresolved facts and the conditions they create for the offer. The price should follow that work, with the return calculation visible to the person approving it.