Many managed service providers have their tech down cold, but struggle a bit when it comes to actual business practices.

This can be especially true during times of transition — say from VAR to MSP or MSP to MSSP. The same best practices won’t work anymore. Benchmarks change, sales compensation changes, billing practices and procurement and fulfillment all change. Whether a pivot thrives or dies is largely dependent on business value, says Arlin Sorensen, vice president of brand and ecosystem evangelism for ConnectWise, and longtime business adviser for the channel through his consultancy HTG Peer Groups, now under the ConnectWise umbrella.

ConnectWise’s Arlin Sorensen

At the upcoming Channel Partners Evolution in Washington, D.C., Sorensen will lead a session on Wednesday, Sept. 11, devoted to teaching partners the importance of creating business value in their organizations. “Why Business Value Should Be Your First Concern and How to Create More of It,” part of the business strategy track, sponsored by Nextiva, will explore the levers available to MSPs that help create business value — and the detractors that can deflate it.

We sat down with Sorensen to get a sneak peek at the wisdom he’ll impart at CPE this year.

Channel Futures: Briefly, tell readers what you mean by “business value.”

Arlin Sorensen: Business value is the value of a company at time of transition. That can happen through sale, merger, or any number of other ways, but it is the value of a company you can extract when you no longer retain the company as an owner.  In basic terms, it is what you can get another person to pay for the company. This amount is usually planned to provide the personal wealth required for an owner leaving the business to maintain their lifestyle.

CF: How does this value change over time, and what are some factors that influence it?

AS: The value of a business is most closely tied to EBTIDA or net profit, which is what enables a buyer to pay for the company over time. There are other factors, such as the type of revenue streams the company has with recurring revenue being the most valuable, but at the end of the day it is EBITDA that really defines business value.

CF: What’s something that most partners don’t consider when evaluating the health and future of their business — to their peril?

AS: Unfortunately, many have not done the math to determine what wealth they need to create to enable them to continue their lifestyle into the future. Far too many partners get to the end of a very long and successful career only to find they have not prepared well for a financial exit.

CF: What are the usual suspects that play into the long-term well-being of a company, and what elements might be surprising?

AS: Beside profitability, customers, employees, vendor relationships and other things can impact business value. On the negative side, it is things like co-mingled personal and business finances, poor processes, lack of contracts and documentation [and so on]. When it is time to transition your business, you want things in pristine condition with little to no gray areas.

CF: How does “business value” relate to an individual company owner’s personal and professional goals?

AS: For most small business owners, their plan for personal wealth accumulation is directly tied to their business. Over the course of 20-30 years leading a company, not only do the financials become dependent, but also personal validation and success. It is critical that owners do the math and determine what business value needs to be created to fuel their desired lifestyle for the future, but also that they address the emotional impact that transitioning from their business will have. Many discount this only to find that “retirement” or transition is very unfulfilling because they did not have a plan for the next phase of life.