Success in 2021: 2020 lessons that set you up for success

If there’s one thing the MSP community has learned from 2020, it’s that exploring finance data in the minutest details is key to making sound business decisions during a crisis. 2020 has exposed unanticipated insufficiencies and vulnerabilities that have put many MSPs in a tailspin — even those seemingly at the top of their business game.

In the last 10 months, ITBD, itself an MSP, has learned precious management lessons and adopted new best finance practices. The strong, steady leadership from our finance department helped us address immediate concerns and positioned us for a recovery that came way more quickly than we expected. Based on our experiences, I can say that learning from a crisis and implementing necessary change to become financially resourceful requires a seismic shift in operational paradigms, not simply tweaking your crisis management plans. Perhaps this year was painful, but now is the time to invest in change before heading into 2021 and beyond.

Working at the speed of the customer is the only way to survive.

Operating at the “speed of the customer” requires a deep understanding of where your customers and their experiences lie in the new normal. In the post-COVID business world, new customer buying habits and expectations are being recreated. The MSPs that are analyzing these emerging trends and modeling out the long-term implications are posed to adjust faster to the global economy’s new normal than those “waiting to see what happens.”

To make an informed decision around adding, removing or tweaking your product or service portfolio, you must know where you stand, financially.

To-dos:

  • Conduct a thorough review of your cash flow, budget, and expenses.
  • Know how much cash reserve your MSP has.
  • Make a list of every ongoing expense.
  • Calculate margin earned on each product or service
  • Use accounts’ historical trending and client management call-based health check scores to make key product/service decisions.

You have heard me say before, you simply can’t make good decisions if you aren’t basing them on facts and real numbers.

Developing scenarios and communicating to stakeholders is the key to building trust.

You must plan ahead to cope with the unexpected. To achieve this, you should develop a point of view about two or three integrated scenarios that encompass multiple eventualities—for instance, which paths might the business take, and which product or services are best positioned for sales to pick up? Your finance team should also articulate clear thresholds or trigger points that suggest what financial actions your MSP will take and when.

To-dos:

  • Track in real-time the effect that cash decisions are having on your MSP’s ability to ride out the downturn
  • Perform a break-even analysis for any newly launched service to determine your cost structure
  • If numbers aren’t looking great, the message to stakeholders should focus on the actions being taken to protect the business, the liquidity situation, and any changes to earlier earnings commitments

Involving CFO in key business decisions is a must-have.

In 2021, your top priority has to be optimizing cash reserves, as the long-term impact of COVID on the global economy remains unclear. Amid all the uncertainty, the CFO can play a strong, central role, alongside executive peers, in stabilizing the business and positioning it to scale back.

CFOs should continuously perform a deep diagnostic on the balance sheet—for instance, reviewing cash flow, as well as accounts-payable and accounts-receivable terms.

Digital initiatives that once seemed out of reach—from automated closings to real-time forecasts—are now critical to the business. The CFO and finance team should take a leadership position in advocating for the use of digitization across the organization, long after the crisis has passed.

To-dos:

  • Have a monthly financial review with your CFO to turn financial data into key business insights.
  • Request easy-to-scan charts and graphs featuring total revenue, gross profit, and net income figures.
  • Ask your CFO to report inaccuracies around monthly recurring revenue, revenue in the pipeline, and return on assets

Accurate finance data drives effective decision making

Making business decisions based on inaccurate or incomplete finance data can be lethal. To become more recession resilient, you must clean up your data. The power of the clean finance data is immense. Accurate information helps determine which customers, services, and industries you should focus on. That data can even help you identify the root cause of any pricing irregularity, reassess product pricing accordingly, and determine if these changes can help you increase your bottom line.

To-dos:

  • Have checks and balances by having different people creating, approving, and reconciling your business accounts.
  • Ask your accountants to create monthly cash flow projections.
  • Review your business’s monthly bank statements in detail.
  • Customize your financial scorecard for monthly reviews, integrating your payroll, and timekeeping information.

Final Thought: As MSPs transition from operating under a crisis to a full-blown recovery, we can incorporate lessons we learned the hard way in 2020. Watching the correct metrics and learning from past mistakes can help your MSP scale faster and thrive in 2021 and beyond.