"Investing in IT and Managed IT Services: What You Need to Know" article

January 16, 2025

by a searcher from Imperial College London in London, UK

https://www.linkedin.com/pulse/investing-managed-services-what-you-need-know-cortus-advisory-group-uzske/?trackingId=IHdjBC4kf1kP22IjXR5afQ%3D%3D

Re-sharing this here - the article gives pointers about doing FDD and running a Quality of Earnings analysis when evaluating MSP's with regular annual recurring revenues (ARR's!) vs. more volatile IT project-based outfits with lumpy one-off project payments.

FDD can help to identify potential risks like customer churn or inaccurate revenue recognition, which can significantly impact valuation and investment decisions.

In sum, the article highlights the importance of doing FDD and:

Understanding revenue models: Recurring vs. non-recurring, and how it's recognized. Analyzing NWC: How it's affected by growth, billing cycles, and investments. The article highlights how a shift from monthly to milestone billing can drastically affect NWC, potentially creating cash flow issues if not properly managed. Evaluating operational efficiency: Staffing, resource allocation, and project management.

I'll leave you with a thought: Have you encountered any specific challenges in performing QoE for IT businesses? How did you address them?

Reply by a searcher
from Furman University in Chicago, IL, USA

Thanks for sharing. One point I'll add is the need to hone in on the MSP's core customer profile. Do they focus regionally, on one sector, etc.? Understanding average customer profile will factor heavily into any post-close growth plans and hiring.

Reply by a searcher
from Università Bocconi in Milano MI, Italia

That's great! Thanks for sharing

+3 more replies.

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