Cap Table Checklist for an MSP's First Option Grants

Many MSPs are structured as S-corps or LLCs, not C-corps, and stock options as most people understand them only exist cleanly in a C-corp. If you're not already a C-corp, granting options isn't the first move: converting entity type, with your CPA and attorney involved, comes first. An LLC can grant profits interests instead, which follow a different valuation and tax path than a 409A stock option.

• Confirm your current entity type with your accountant before evaluating any platform.
• If you're an LLC, ask whether profits interests, not options, are the right instrument.
• If you're converting to a C-corp, time the conversion and the first 409A together.

This step gets skipped more often than you'd expect, usually because a founder assumes the entity choice made at formation still fits five years and twenty employees later. Revisit it explicitly before you touch either platform.

An owner who wants to move fast sometimes sets a strike price based on book value or a round number, skipping the 409A entirely. That decision can turn a well-intentioned retention grant into a tax problem for the employee under Section 409A penalty rules if the price is challenged later.

Pulley and Carta have both offered in-house 409A valuations for firms without a funding history, but Pulley has announced it is shutting down on December 8, 2026, so ask any provider how it values a recurring managed-services business.

An MSP's recurring managed-services contracts are its most valuable asset, but a valuation analyst unfamiliar with the model can undervalue that recurring base if it's presented as generic service revenue instead of contracted, renewing revenue. Come prepared with contract length, renewal rate, and client concentration data, since that context materially changes the valuation outcome.

• List your top 10 clients by contract revenue and renewal history.
• Separate recurring managed-services revenue from one-off project work in your model.
• For example, flag it for the valuation team if a single client makes up an unusually large share of your revenue.

G&A costs already run around 24% of revenue at many growth-stage service firms¹, and stock comp expense that isn't reconciled monthly compounds into a painful year-end catch-up.

Build the reconciliation habit before grant volume grows: a firm that lets three or four months of stock comp entries pile up unreconciled usually finds the catch-up takes far longer than doing it monthly ever would have.

Private equity buyers doing diligence on an MSP roll-up will ask for a complete, reconciled cap table, every grant tied to a board resolution, every exercise tied to payroll. Firms that discover gaps during diligence lose standing in the negotiation and burn weeks reconstructing records under deadline pressure, right when they can least afford the distraction.

• Reconcile your cap table to the general ledger at least once a quarter, not just before a transaction.
• Keep board minutes and grant agreements in the same system as the cap table, not a separate file share.
• Ask any prospective platform how it exports a diligence-ready package on short notice.

A generalist bookkeeper handling AP, payroll and basic reconciliation is rarely the right owner for equity administration on top of everything else, even at a small MSP. A dedicated accountant's median national wage runs $83,680², a useful benchmark for what it costs to bring in someone senior enough to own equity administration properly if the workload justifies a focused hire rather than folding it into an already full plate.

Name an owner for the process before your first grant, not after the second one goes undocumented.