Nothing ventured, nothing gained. For MSPs wondering why business growth is not quite working or stagnating, the following line of thought is suggested.
The dynamic market, ever-increasing customer demands and increasingly complex infrastructures are a problem for many MSPs. But even professionals who master all of these challenges on a day-to-day basis can use a few tricks to minimize their risk and create a stronger foundation for future growth: from optimally managing cash flow and payment arrangements as leverage to attitudes to regard to recruitment costs. The new year is the perfect time to integrate these three approaches into the business strategy.
Optimize cash management
Growth is probably on every company’s wish list. But nothing comes from nothing – or does it? MSPs can easily make their contracts work for them by getting the right contract terms. IT service providers could transfer as many customers as possible to managed service contracts. The beginning of the year is a good opportunity to discuss this subject. MSPs should take the opportunity to set clear payment terms with their customers so that they are paid monthly in advance for the IT services they provide.
Another tip: CEOs often forget to add their personal compensation to the cash flow calculation. In the initial phase, they should only withdraw a fixed amount as salary for the time being. If all customers have already agreed on a clear payment term and the technical costs have been calculated, experience has shown that the personal payment requirement will decrease over time and it is worth building up a war chest. It won’t happen overnight, but with a gradual financial cushion, MSPs can approach new business challenges and expansion plans with more confidence.
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Start-up financing – yes or no?
Most of the time, MSP customers receive monthly invoices for the agreed service. They might even pay you an upfront fee for the month – that’s even better. It becomes even more attractive when MSPs combine a quarterly or even annual upfront payment. A big advantage here is that you can manage the money directly and plan differently for the year. For businesses that are notoriously cash-strapped, this may not be an option. For large customers, MSPs can work with incentives, such as offering a month of free IT services with an annual upfront payment. This not only ensures an optimized cash flow, but can also increase customer loyalty through attractive special conditions. In turn, service providers can better invest the cash flow generated in new hires or growth initiatives for the coming year.
changing attitude towards personnel costs
A common pattern among business decision makers is to prioritize security and possibly overestimate the costs associated with certain necessary investments. An example: the hiring of essential reinforcements. Personnel or new hires are always initially considered as total costs or as a total expense for the company. For example, if an MSP wants to hire a young technician, it’s around 40,000 euros per year on paper. The hurdle of budgeting $40,000 is much higher than expecting a monthly outlay of $3,500. An MSP must therefore ask the question: can I raise 3,500 euros per month? You do not undertake to pay 40,000 euros in advance. An agreed trial period applies to both parties and reduces the risk of bad decisions. Once the newly hired worker has been trained, with the additional resources, it also helps the team to gather more capacity for business growth.
As an MSP operator, keep an overview
Of course, it is easier said than done to change the underlying attitude and dare to dive into the heart of the matter when it comes to investments. When such situations arise, it makes sense for MSP decision makers to take a step back and assess which path is actually riskier. In practice, there are often two basic scenarios: On the one hand, an MSP can take on high risk in the short term. However, the investment could also be an incentive to become more involved in day-to-day affairs. The alternative to this would be to avoid obvious growth investments to be on the safe side. With this decision, MSPs are entering a situation that is unlikely to be sustainable in the long term.
Of course, it is easier said than done to change the underlying attitude and dare to dive into the heart of the matter when it comes to investments. When such situations arise, it makes sense for MSP decision makers to take a step back and assess which path is actually riskier.
Starting a business is always a risk. It’s surprisingly similar when it comes to growth: you can’t always be 100% sure or wait until you’ve gathered all possible income before spending it. Essentially, an MSP makes an upfront investment in exchange for a potentially deferred consideration on which to build business growth. Also, it may be necessary to be prepared for some disadvantages when investing. For example, it may be necessary to save money to hire someone else.
Make loans work for you
Fortunately, banks are now very willing to lend. They raised tons of capital over the past two years to support the economy during the global pandemic, and some of those lagging effects are still present today. With low interest rates, MSPs large and small with good cash flow and solid credit should take out loans and invest the capital in the business. Right now, a loan feels like another burden an MSP doesn’t seem to need. However, if you realize that a business is paying around 2-3% interest on a loan and can then invest the loan amount back into the business by hiring new employees or acquiring new technology, the perspective suddenly changes completely. . With the newly acquired resources, new customers or other additional sources of income can be developed, which in turn realize returns of 8-10%. Not all debt is bad; Debt can make a business more financially flexible and even beneficial in the long run.
In summary, small and medium-sized MSPs, in particular, prefer to focus on lower-risk critical decisions. Assumed high-risk moves and expenditures should be evaluated for their potential to drive business growth. New resources and approaches often require an investment that is not always financial in nature. No matter the effort, they often pay off in the long run and bring more to the MSP than they initially asked for.