Ask any small business today about success and they’ll tell you it requires a healthy combination of passion, drive, and unrelenting dedication. What they often forget to tell you is that building and maintaining a strong business also relies on best financial practices. Not only do efficient finance practices help promote your profit, but they also provide an important safety net during a crisis.
It may sound cliché but finance is the lifeblood of any MSP business. Especially, if you are a small-sized MSP, you must pursue the best finance practices to make well-informed decisions in business. To talk about the direct correlation between successful small MSPs and pursuing the best financial practices, I invited our CFO Susanne Stover for an interesting podcast. A Certified Public Accountant and Certified Professional Coach, Stover has over 27 years of professional experience and 13 years as a CFO.
Have an effective business plan
A good business plan will keep you focused and on track as your MSP grows, when new challenges arise and when unexpected crises hit. A well-written, well-timed plan not only helps investors (if you have any) understand your business’ vision but also shows them that you’ve taken the time to carefully assess and think through the issues your business might face, as well as the more detailed questions surrounding the economics and fundamentals of your business model.
As a thumb rule, work on the business plan inQ4 of every year. The plan should include the budget for the next year. Reflect on the need of each department and see how this can support your company’s growth goals such as acquiring 100 customers in a year. Before you make an informed decision on budgets, it is important to know where you stand. Conduct a thorough review of your cash flow, budget, expenses, and other resources.
If required, build a refocus plan, looking at the likely costs you would incur through potentially reduced revenue. To help forecast (or re-forecast in this case), build different models for different scenarios in terms of time and financial impact. It is impossible to create a resilient business without understanding the range of possible futures your business might face. So, from a purely financial perspective, I suggest you have operational models drawn assuming a 10% reduction in expected revenue, 25% reduction, and even a 50% reduction during a crisis. This will help you identify the necessary costs to cut in the next step.
Have all finance systems automatized and integrated
You may be the smallest MSP by size, but one blunder you cannot afford is not automating your financial processes and opening them up for fraudulent activities. For zero-touch automation, invest in a financial system that has a variety of automation tools such as invoicing emails, reconciling transactions, and customer billing history statements.
The system you choose should be able to help you integrate your CRM and accounting software. This way, your finance department will be able to eliminate double-data entry and reduce human errors between accounting and CRM software. This will also keep transaction records and track payments made in integrated tools to reconcile them against invoices. The system you choose should give your customers absolute transparency into previous and upcoming payments and manage their billing preferences. No matter when your business is open, customers can log in to pay their bills.
Have the right finance person work with you
If you are a small MSP, you cannot afford to have the wrong finance professional working for you. Beyond any transactional accounting role, the important attribute to look for in a finance team member is the ability to pay attention to detail while keeping the bigger picture in mind. Strong knowledge of accounting along with core skills of analysis and reporting is key. Staying clear on accounting principles with any changes, different analysis, and reporting themes, plus leadership is a few things your new and existing finance team members should always focus on.
Encourage all team members to embrace learning especially if they are still working remotely. Annual external audits or routine internal audits can also be particularly a challenge to conduct remotely. Immediately take inventory of all digital collaboration and productivity technology platforms within the MSP. Set up a secured virtual data room to enable interaction between key internal and external stakeholders. Audit work plans with defined milestones can be captured using project management tools as well.
Final Thought: While small MSPs are busy addressing “high priority” customer retention and service delivery needs, there are still tough decisions to be made, starting with your finance practices. Now is as good a time as any to take steps to be better situated for future challenges and adopt basic, but key finance practices.
