Obviously, you hire people to do your accounting, but it always helps to know a bit of financial matters yourself, if only to have intelligent conversations with the financial folks. For the month of April, we’re running a series of blog posts through which we’ll give you a rundown on some fundamental financial issues. In a perfect world, this would be a lot of Captain Obvious stuff. But if it were obvious, businesses wouldn’t struggle so much with financial matters.

We’re going to start with the most important one — MSP cash flow. If the cash isn’t flowing, that’s when solvency issues start to rear their heads, which also happens to be the cause of a significant percentage of small business failures. That’s why attention to cash flow is, to say the least, mission-critical. Without cash, you can’t pay your staff or your bills, so watch your cash at all times.

Forecast Cash Flow

If you have no way of knowing how your cash is flowing, you’re screwed. Cash flow forecasts give you a picture of what’s coming in and when. Understanding your inflows makes it easier to time your outflows. This is why the break-fix business evolved into managed services; with the latter, it’s a lot easier to know what your future inflows look like, which puts you in a position to plan better. Make sure your MSP cash flow forecasts are up to date. That also means that if your projections are off, you need to find out why. Have you overestimated how much revenue you’ll get from a service type or a client?

Pro Tip: Account for bad debts. Don’t assume every customer will pay you on time, every time. Use past data to estimate how much to set aside for bad debts and account for that in advance.

Managing Cash Flow

Let’s say you’ve identified that your flow could be flowing a little better. Maybe your biggest customer just went under and your forecast flipped from black to red. How do you deal with this?

Tighten Receivables

Extending credit to clients is pretty standard in a lot of lines of work. But you’re not a bank, so don’t get carried away with letting receivables slide. If you’re not getting paid upfront, keep an eye and make sure that receivables aren’t stretching out too far. You don’t have to be a jerk about it since the pandemic made it clear that sometimes your customers get smacked with unforeseen issues. But be wary of customers who should be paying but aren’t. That could indicate that they’re in trouble and you definitely want to tighten up on those clients, lest they default on you.

Stretch Payables

This is the reverse, and yes, it signals to your vendors that you’re having some issues of your own. This tactic makes the most sense when it’s a one-off, unusual scenario. For example, maybe you had to settle a lawsuit that left you a bit strapped this month, but your operating budget hasn’t actually changed, so you’ll be back to normal next month.

Increase Sales Without Increasing Your Costs

I mean, who wouldn’t do this? However, the point is to look for other ways to increase revenue that usually tend to be overlooked. Ensure your billing is aligned with service delivery; often, items get out of whack, especially if your clients are growing. Sell as many of your services to your clients as possible. Maybe they’ve changed their tune about cyber insurance or disaster recovery since the last time you talked. Leave no stone unturned.

Increase Efficiency

Shameless IT Glue plug? Sure, but there are other ways to increase efficiency as well. We just know that our partners get efficiency gains from standardizing their processes and cutting out space between the knowledge their techs need and the tools that hold that knowledge. Increasing efficiency can help you grow your business without increasing expenses.

Know Your Sources of Financing

Growth can be a massive cash flow sink, especially if you invest in growth first and don’t see a return very quickly. While this is a bigger issue in industries that are more capital intensive than managed services, it still pays to be aware of your options for aligning the costs of expansion with the benefits of it. This is one area where financial accounting and cash flow accounting can yield completely different perspectives on your finances – spending big on items you amortize doesn’t brutalize your income statement. However, if it puts you in a bad spot in terms of cash flow, you can still get into trouble. Align your outflows and inflows.

The main thing to remember about cash flow management is this: If you think about MSP cash flow proactively, you should be fine. If you think about cash flow retroactively, after you notice you’ve got a problem, you have much less flexibility to fix things.

Want to learn more about MSP finance? Sign-up for our upcoming finance-focused webinar featuring Peter Melby, CEO of Greystone Technology, a globally recognized MSP, as he reveals how MSPs can reinvest and make money at the same time.

Sign me up for the webinar!

The post MSP Finance: Mastering Cash Flow appeared first on IT Glue.

The Basics

Activity-based costing seeks to determine the true cost of doing something. If you’re looking at this at a client level, which is a good idea for an MSP, you’re determining the cost of servicing that client. The obvious benefit is that you can align what you charge a client a lot more closely with what it costs to service a client.

Let’s say you have two clients and you charge each of them the same $150/seat, and they each have 20 seats. That means each client is worth $3,000 a month in revenue. Company A is low-maintenance. They use your full stack and hardly ever send in tickets. Your service desk spends 10 hours per month dealing with them and each hour of your service desk costs $75 all in, which means they cost you $750 each month. This is a great client.

Company B is a complete dumpster fire. They have all sorts of old equipment, refuse to adopt half your stack, and because they are all useless with technology, they call in for tickets all the time. Your service desk spends 50 hours per month dealing with them, costing you $3,750 a month.  

Obviously, I’ve made up these numbers just to prove a point, but I think we all accept that some clients cost more to service than others. If you can apply hard numbers to that, you can make a case to them to a) adopt your stack, b) pay more or c) both. It also makes it easier for you to feel good about letting go of a client if you have good numbers and those numbers show that a client is routinely losing you money (or even just coming in below your cost of capital).

Probably the most difficult thing about this concept is getting the data. Pay attention to whether or not the tools in your stack are delivering the data that you need to have accurate costing information, and then make the best decisions on pricing.

Want to learn more about MSP finance? Sign-up for our upcoming finance-focused webinar featuring Peter Melby, CEO of Greystone Technology, a globally recognized MSP, as he reveals how MSPs can reinvest and make money at the same time.

Sign me up for the webinar!

The post MSP Finance: Activity-Based Costing appeared first on IT Glue.

Negotiation Mode: Restructure the Contract

Contract re-negotiations happen all the time, especially where outstanding debt is concerned. If your client cannot pay for the services in the contract, then you may need to have a conversation about what services they can pay for. Separate their musts from their wants. They must have secure environments at all times. They want new hardware, or rapid ticket response. It’s better to renegotiate a deal and get something, while maintaining the positive relationship, than it is to get nothing.

Cost-Cutting Mode: Reduce Expenses

A lot of companies are getting into the cost-cutting game. Putting people on furlough or laying them off is one of the absolute worst parts of running a business. Most people hate firing toxic incompetents much less laying off actual awesome people. If your financial projections allow you to cut costs elsewhere, do it. You’re not in an office, so don’t keep the lights on. Reduce salaries if you need to. Look for efficiency all around your business – is the total cost of ownership for your tech stack giving you the ROI you need? Deep integrations, killer documentation and automated everything make you more efficient. The total cost of ownership is what matters – not the sticker price. Sticker price is a trap; smart business owners know better than to be suckered into buying bargain basement crap.

Shutdown Mode: Disconnect Everything

Pay to play makes some intuitive sense. If they can’t pay for your services, don’t provide any. This is what you’d do if it was business as usual. In business unusual, however, I recommend you play the long game. What business are they in? How healthy was that business before COVID? By all means, shed some deadweight customers, that’s always a healthy thing to do, but if you’ve got a good client that you think will be able to get back up and running when all this is over, it’s probably better to go into negotiation mode.

Jerk Mode: Increasing Collections Aggressiveness

When it’s business as usual, increasing pressure on your outstanding clients is a common tactic for managing A/R. But this is business unusual. In business unusual, you’re not going to get blood out of stone by smashing it harder with your hammer. Someone who isn’t paying, but always did before, it’s because they can’t. So if you increase pressure, you’ll just come across like an insensitive jerk, and ultimately you’ll probably do more harm than good. Don’t be a jerk.

Lifesaver Mode: Take Advantage of Your Options

In most countries, there are a number of programs available to employers to help them cope with the struggles they are facing. The Kaseya Cares program helps our partners to navigate the myriad programs available to them. Use every dollar you’re eligible for in order to help you get through this. These programs have been developed specifically to help businesses like yours.

When receivables increase like they are for most of you, it can feel like your cash conversion cycle extends out beyond the end of time. Look for ways to find new revenue. Look for ways to improve the efficiency of your tech stack – not the cost – the efficiency. And for goodness sake, not every client that owes you is the same. Talk to them – this is a time when you need to engage in an honest dialogue rather than wasting time trying to collect from people who don’t have any money.

At IT Glue, efficiency is what we do. All that stuff about saving time, automation, and deep integrations – that’s our jam. Take a look at how we can help you manage your financial picture, starting now.

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The post Do More With Less: How to Handle Rising Receivables appeared first on IT Glue.

Strategic Network Planning

Network Glue allows you to identify opportunities for change, especially in terms of network hardware. These changes are often revenue opportunities for you, but they can also be compelling improvements for the customer because they represent investments that support internal teams, and mitigate future expenses due to equipment failure. The network diagrams that come with Network Glue can be used to concretely demonstrate to your clients specific areas for improvement. Having this piece of tangible evidence that shows the client how one out-of-date piece of hardware can affect the performance of an entire location or pod can increase your sales both during the onboarding process and as part of ongoing quarterly business reviews.

Showcase Expertise

A lot of IT service providers have clients that haven’t yet been converted to recurring revenue. Whether legacy clients or new ones, clients on break-fix or piecemeal plans aren’t as lucrative as those on managed services plans. Furthermore, it takes more effort on your part to offer a larger range of services. While there are many potential barriers to converting clients to managed services, if you can show the value in taking a proactive approach, you should be able to build more trust with your clients. Network Glue doesn’t just give you expertise over your clients’ networks, but allows you to showcase that expertise as well. It can be an effective tool for your account management team to showcase expertise and convert more of those legacy, piecemeal clients into steady, recurring revenue clients.

Free Up Resources

We always recommend that a standardized stack is the ideal. Not that getting there 100% is ever really going to happen but it should be something you are constantly moving towards. Network Glue helps you move towards that. As your clients all get on the same page, and shift towards proactively addressing issues to reduce dependence on reactionary fixes at the service desk level, you’ll find that you have more resources – especially time – to dedicate to things like sharpening up your lead gen or sales pitches. Whether it’s spending more money on your sales team, or spending more time building out your marketing, migrating towards a standardized stack helps you refocus resources towards revenue-generating activities. The visibility afforded by Network Glue helps you get there.

While on the surface of things, Network Glue is mostly about saving time and improving profitability that way, it’s worth thinking about how you can take the information that Network Glue gives you and use it to increase sales, because those opportunities are certainly out there for the majority of MSPs.

To see for yourself how Network Glue works its magic, sign up for a free trial today.

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Network Glue gives you automated discovery, documentation and diagramming of all network devices, regardless of vendor. Document all clients for one low, flat fee.

The post How Network Glue Helps Your Revenue Picture appeared first on IT Glue.