An IT services or managed services business is worth what its ongoing profit can support, after a fair wage for the owners, adjusted for risk. Recurring support contracts, many clients, good margins and a team that can run without the founder tend to support value. A dominant client, thin resale margins and reliance on one engineer tend to reduce it.
What is the short answer?
Your IT business is worth what its ongoing profit can support, adjusted for the risk that profit will not continue. In IT services, the type of income matters as much as the amount.
Managed services, meaning ongoing support for a set monthly fee, tend to produce steadier profit than one-off projects. Hardware and licence resale can make sales look large while adding little profit.
Three things matter most:
- Profit by income type: recurring support, projects and resale each carry a different margin and risk.
- Client spread and tenure: many clients who stay for years are worth more than a few who could leave.
- People: whether the team, not just the founder or one engineer, can keep clients running.
What pushes the value of an IT business up or down?
Income that renews on its own, from many clients, at a sound margin, tends to push value up. Income that must be won again, from a few clients, delivered by one person, tends to push it down.
| Factor | Tends to support value | Tends to reduce value |
|---|---|---|
| Income type | Recurring managed services on written agreements | Mostly one-off projects and break-fix work |
| Revenue mix | Services margin drives profit | Low-margin hardware or licence resale drives sales |
| Client spread | Many clients, none dominant | One client makes up much of profit |
| Contract terms | Set terms, notice periods, price reviews | Month to month, no written terms |
| People | Several capable engineers, documented systems | One engineer or the founder holds key knowledge |
| Tools and access | Client passwords and systems held securely by the business | Access held by individuals, poorly documented |
| Vendor ties | Several suppliers, terms that can transfer | Reliant on one vendor's partner program or pricing |
Recurring revenue. A valuer looks beyond the label. Long client tenure, clear notice periods and regular price reviews make recurring income more reliable.
Resale income. Many IT businesses resell hardware, cloud licences and software. A valuer separates that from service income so the margin is clear.
Key people. Clients often trust a particular engineer. If that person would leave with a sale, the buyer is paying for profit that might go too.
Which add-backs and traps matter in an IT business?
Add-backs are costs added back to profit because a new owner would not pay them. In IT businesses, several items can make profit look better or worse than it is.
- Founder pay. If you work as the senior engineer for a low salary, profit looks higher. A valuer deducts a market wage for your role.
- Contractors. Regular contractors doing core support work are an ongoing cost, not a one-off.
- Prepaid contracts. Clients may pay a year in advance. That cash is for work still to be done, so it is not all profit.
- Licence renewals. Renewal timing can make one year look stronger than the next. A valuer smooths out the timing.
- One-off projects. A large migration or rollout may not repeat. It may be excluded from ongoing earnings.
- Unbilled time. Hours worked but not charged, or work done outside contract scope, reduce real margin.
- Stock and equipment. Old stock, loan equipment and leased gear are checked for real value and ongoing cost.
- Lost clients. A client that has given notice is removed from ongoing income.
What documents matter for valuing an IT business?
Beyond two or three years of financial statements and tax returns, a valuer needs records that show what kind of income you earn and how secure it is.
- Revenue split by managed services, projects, hardware and licences.
- Revenue by client, with start dates for each relationship.
- Managed services agreements, notice periods and price terms.
- Service desk or ticket reports, if they show workload and service levels.
- Vendor and distributor agreements, including partner terms.
- Staff and contractor lists with roles, pay and employment terms.
- A list of recurring supplier costs, such as cloud and tool subscriptions.
The Australian Government's guide to valuing your business lists customer lists, staff performance and business operation procedures as parts of goodwill. For an IT business, documented procedures matter because they let support continue when people change.
How can two similar IT businesses be worth different amounts?
This example is made up. It shows how similar sales can lead to different values.
Business A and Business B report similar sales. Business A earns most of its profit from monthly support contracts with many small clients. Two senior engineers share the work, and processes are written down.
Business B earns much of its sales from hardware resale and large projects. Its biggest client provides a large share of profit. The founder is the only person who knows several client networks.
Business A's profit is more reliable, and less of it depends on one person. It is likely worth more.
Which Valuo report fits my IT business?
Choose by who will read the report. For your own planning, the Business Value Report fits. If a buyer, lender, investor or partner will rely on it, choose the Professional Valuation Report.
Business Value Report. A streamlined assessment for your own decisions, such as deciding when to sell. A valuer reviews it before it is issued. It is not signed and is not for buyers, lenders or other third parties. Fees start from $995 + GST.
Professional Valuation Report. A full independent valuation, with adjustments explained and a report signed by the valuer responsible. It suits a sale, a merger, a lender or a partner arrangement. Fees start from $1,495 + GST. For revenue of $2 million to under $5 million, it is $2,995 + GST.
Every fee is fixed by revenue and confirmed in writing before you pay. Businesses with revenue of $10 million or more receive a fixed fee quoted before any work starts.
If you are building your own software product and are not yet profitable, Start-Up Valuations specialises in early-stage businesses. Shareholder buyouts and restructures are scoped by Oliver Group.
Get your figure
- See your fee in two taps: Get your fixed fee.
- Compare both reports and every revenue band: pricing.
- The general guide: how much is my business worth.
- Getting ready to list: valuing a business to sell.
Questions
Does recurring revenue make my managed services business worth more?
It often supports value, because monthly support contracts make future profit easier to predict. A valuer looks at contract terms, notice periods, how long clients stay and the margin on that recurring work.
Do hardware and software resale count towards my value?
They count, but usually for less than their share of sales suggests. Resale often carries a thin margin. A valuer looks at the profit each type of income produces, not just the revenue.
What if my business depends on one senior engineer?
A buyer will see that as a risk. If that person leaves, clients and know-how may go too. Documented systems, a second skilled person and sound employment terms reduce the risk.
Is my IT business valued like a software company?
Not on sales alone. A services business earns from people and contracts, so it is normally valued on the profit it makes. If you are building your own software product and are not yet profitable, a specialist such as Start-Up Valuations may suit better.
Do vendor partner levels or certifications affect value?
They can, if they bring margin, discounts or client trust that would stay after a sale. A valuer asks whether those arrangements depend on particular staff and whether they can transfer to a new owner.
General educational information, not advice. Examples are hypothetical and do not value a real business. The right treatment depends on the purpose, the evidence and the agreed scope.