Podcast: How collections impacts the valuation of your business

Podcast with ConnectBooster about collections and MSP business valuation

In the sixteenth episode of Talking VoIP With Datagate, Mark Loveys is joined by Taylor Thorson of ConnectBooster!

This session is on the timely topic of M&A and how collections impacts the valuation of your business.

Watch the full episode below:

About Our Guest:

𝐓𝐚𝐲𝐥𝐨𝐫 𝐓𝐡𝐨𝐫𝐬𝐨𝐧, 𝐂𝐡𝐚𝐧𝐧𝐞𝐥 𝐌𝐚𝐧𝐚𝐠𝐞𝐫

Taylor is responsible for partner engagement and representing ConnectBooster at industry events and activities. Since joining the company in 2020, she has evangelized ConnectBooster payment and accounts receivable automation as a competitive advantage for MSPs. Taylor is a frequent webinar and podcast host, and event speaker in the Channel.

𝐀𝐛𝐨𝐮𝐭 𝐂𝐨𝐧𝐧𝐞𝐜𝐭𝐁𝐨𝐨𝐬𝐭𝐞𝐫

ConnectBooster provides accounts receivable and payment processing automation. Built by and for MSPs, ConnectBooster helps IT service companies spend less time on billing and collections tasks and optimize cash flow. By integrating with the solutions MSPs rely on—CRM/PSA, quoting and accounting software—ConnectBooster automates tedious and error-prone accounting tasks and automatically collects payment according to variable agreements.

Get In Touch With ConnectBooster

🌐 www.connectbooster.com

✉️ [email protected]


ConnectBooster’s LinkedIn

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Episode 16 Transcription

Mark Loveys  0:00  

Hi, everyone, welcome and thank you for joining us with a 16th instalment of Talking VoIP With Datagate. I’m Mark Loveys, CEO of Datagate Telecom Billing. And in today’s episode, how collections impacts the valuation of your business. Our guest is Taylor Thorson of ConnectBooster, who are the leading experts in automated accounts receivable processing, and a great partner of database. Taylor, welcome. And thank you for joining us.

Taylor Thorson  0:26  

Thanks. I’m so excited to be here. It was, it was fun, because I met some of your team in person two weeks ago. So it’s always fun when we finally put names and faces together. So thanks. Thanks for having me.

Mark Loveys  0:38  

Absolutely, absolutely. It’s always great to meet in person and the conferences are really going so well. It’s awesome. Hey, so Taylor, we’ve obviously put quite a lot of work together – Datagate and ConnectBooster with the integration between the two products, and that enables in customers of ConnectBooster users to see the Datagate invoice exactly as it’s produced, shows the PDF gives them the full picture full detail. But obviously, Datagate is just part of what ConnectBooster does. And ConnectBooster integrates with so many products. So it’s obviously why integration is so important for a payment solution.

Why are integrations so important for a payment solution?

Taylor Thorson  1:29  

I mean, the big importance of it is just really that automation between all the different platforms that MSPs are using, right, people are using ConnectWise, some are using BMS, then they’re talking to QuickBooks, and there’s all these pieces that aren’t necessarily connected. And so with us, we kind of connect those missing pieces. And that way, your PSA is able to talk to your accounting package. And then from there, we can pull the information, just making it a lot more of a seamless process than having to go into multiple different, you know, multiple different platforms and try to match things up and do different things. So that’s what we do just kind of make this a little bit easier for our customers.

Mark Loveys  2:12  

And so this is all to I guess, to make your collections timely and quicker. So but why are timely collections so important?

Why are timely collections so important?

Taylor Thorson  2:24  

I mean, there’s a ton of reasons. And we’re going to kind of talk about valuation today. So that’s a big piece of it. But just cash flow in general is the lifeline of every single business. So I think we can all understand that if we’re not making cash, we’re not probably growing, we’re probably not doing the things we want to do in our business. But it’s always funny because I spend most of my time traveling and at events. And it’s kind of like the last thing people think about, they want to sell, they want to do all these things, but they don’t really have everything in order on the operational side. And that’s when you start to see collections being 60, 90, 120 days late. And that’s where people start to have issues. And it’s always really interesting, because we always look at stats. And I think we just looked at one and it was like 82% of MSPs get paid 60 days or later. And that impacts your cash flow much more than people realize.

Mark Loveys  3:18  

And so as per the subject of this podcast, how can collections affect the valuation of the business?

How can collections affect valuation?

Taylor Thorson  3:28  

I mean, I do have a calculator, which we’ll look at in a little bit. But by not having that in place that can lower your valuation, just not having that cash flow upfront. If there’s a lot of unpredictability in your business, I think that can really hurt your valuation. And makes people a little unsure of okay, well, is this a good buy? Is it not a good buy? And obviously, if you’re selling your business, you want to get top dollar for what the work you’ve done and everything you’ve completed. 

Mark Loveys  3:59  

absolutely, I guess if people are slow paying you, you’re essentially funding their businesses, because, you know, you need more cash to run your business. 

Taylor Thorson  4:11  

We look at stats all the time, and it was like after an invoice hits, like 120 days late, which is pretty common for a lot of people. Like I think there’s like a 15% chance that they’ll pay that. So you start to look at this and all the money that people are losing out on. And that’s kind of where the issue stems from. Well, and so, you know, with obviously automation and streamlining that process that that’s where we can kind of come in and make that a little easier for everyone.

Valuation sheet

Mark Loveys  4:41  

Absolutely. So you have a valuation calculator, that sounds intriguing. Are you able to show us that?

Taylor Thorson  4:55  

Yes. And I wish I was the one that made this. But I’m not saying Oh, our chief financial officer made this and he’s a wizard. So he put this together. 

But really the whole point, if you can see my screen, the whole point of it was to take two companies, right. And they basically have the same growth rate, the same gross margin, EBITA, all of that. And just looking at how average days outstanding really impact your business. 

And that’s like, one of the easiest things that people can fix in their business is just when they’re getting paid, and how they’re getting paid. 

So I thought this was interesting, we can look at this one first. So this is Company XYZ. 

And right now, their average days outstanding are 75, which that’s pretty long. I’m gonna knock it down to 60. Because I think that’s more realistic, so you’re looking at two months outstanding. 

And then if we look at Company ABC, we’re looking at about 15 days, so half a month to get paid. That’s, that’s really good numbers. And if you look at this, this is where the valuation difference is. 

So Company ABC, that’s collecting in 15 days is at about $1.5 million dollar valuation, that’s, that’s a good valuation. But if you look at XYZ that are getting paid in two months, it’s 1.3. 

So that’s about a $200,000 difference just on how they’re collecting with no work just knocking that down from 60 days to 15.

How does payment time correlate to valuation?

Mark Loveys  6:32  

Well, so Taylor, how does that logic work? So what direct effect does the payment time – how does that correlate? It obviously does change the value quite significantly.

Taylor Thorson  6:46  

So we look at net present value on this and just like looking forward at what cash flow will be. And so really, this is just off predictable cash flow is how we’re looking at it when you have that cash in hand. That that’s a lot different than I’m gonna get this cash. So that’s where we’re looking at AR there. If that makes that makes sense,

Mark Loveys  7:04  

Yes, I see. I see. see you’ve got working capital gap, so that I guess it’s really showing how you need more working capital if you’ve got slow receipts coming in?

Taylor Thorson  7:17  

Yeah, so you can see that and so you can see that one right, we’re at about 50, 48, 53. It’s fluctuating. 

Actually, this is kind of a fun number too, if you look at AR collected in a year, so you can see how that’s going up with this company? I got to zoom in a little bit here for you guys. Um, but here. Oh, that’s not what I want to show the working capital is what we want to look at. Yep. So you can see the gap where that’s, that’s a lot smaller than Company X, Y and Z. So yeah, you’re 73,500 here. Yeah. And so like, that’s kind of the crazy thing. If people plug in their numbers, they can kind of see, well, if I can just drop my AR from right now. I’m at 65 to 35. Look at the difference that can make. And not even if you’re looking at selling your business, but just in general, operationally, how you’re running your business. Right? We like making money. Who doesn’t want to put more money in their bank account?

Mark Loveys  8:17  

Absolutely. That’s great. This  spreadsheet, is this something that you share with MSPs? If they ask for it?

Taylor Thorson  8:24  

Yeah, so I think anyone that watches this will be able to share with them so they can plug in their own numbers, as well. And just take a look. It’s easy to do, it makes sense. And like I said, Jason, our CFO is amazing. And a really, really smart guy. 

Mark Loveys  8:41  

Excellent, excellent. Hey, this is really interesting. I know that with ConnectBooster, it’s a very, very popular product with the MSPs and, and the things that we hear about it, you know how much it just automates everything and reduces the amount of work involved in chasing up collections from customers. And just makes everything automatic. And so we hear about that all the time. That’s what, that’s what people really like about ConnectBooster. And it’s interesting, this is probably something they don’t, they probably don’t think about as much, but they really should. It’s extremely important- the valuation of a business. Ultimately, that’s, I guess, business owners, that’s what we’re all trying to do is maximize the value of our businesses. And so this is, this is a really interesting subject. And I really appreciate you coming on today to explain it to us.

Taylor Thorson  9:31  

Absolutely. And m&a is just such a popular thing right now. And it’s only becoming more and more popular. So it’s just something to get people thinking. Make sure they’re looking at all parts of their business, not just you know, the selling part or or their stack or whatever it may be but the operational side as well.

Mark Loveys  9:48  

Absolutely. And I’m sure that any business that has a full set of integrated software, you know, where things are automatic and you know, you’ve got software, doing work where otherwise people would have to do these manual tasks I’m sure that makes businesses more valuable to so.

 Excellent. Thank you. Well, Taylor, thank you for being our guest today. We really appreciate it. It’s been really interesting and to our audience, thank you again for tuning in to this episode of Talking VoIP With Datagate. 

 Our guest today was Taylor Thorson of ConnectBooster. Really appreciate your time today. We wish you all success with your MSP business, whatever you may be doing and, as always, may the VoIP be with you. Thank you.

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