MSPs
a true and comprehensive understanding of the underlying financial picture. And, as a result, many MSPs continue to manage their business based on how much money they’ve got in the bank account rather than what profit they’re actually making.
Inaccurate data can hide contract losses It is this false comfort from accounting platforms that oſten becomes the barrier to making meaningful improvements in profitability. An MSP might assume that once its professional services
automation (PSA) is integrated with an accounting platform, all the information needed to understand profitability is automatically collated and available, and insightful reports can be generated at the click of a button. However, this is rarely the case. While these integrations can be great for reducing administrative
burdens, they do not guarantee accurate financial insight. As MSPs well know, the quality of the reports generated always depends on the quality of the data feeding into them. Take customer profitability as an example. While accounting
soſtware might be able to tell the MSP that a customer generates £10,000 a month, it is oſten unable to accurately show how many resources are being consumed to support that customer. Tat information typically lies in the PSA, but it also relies on
engineers, service desk agents and account managers recording their time properly. Without that information, the business cannot reliably measure the true cost of supporting a customer. In this scenario, it might look like a customer generating £10,000
per month is highly valuable, but if that customer requires £15,000 worth of engineering time, specialist expertise, third-party services, and management oversight, the contract will actually lose £5,000 every month. Te danger is that MSPs never see this. Revenue continues to flow
in, and management reports suggest that the customer is lucrative, but the true cost of servicing the account remains hidden because the underlying operational data is incomplete and inaccurate. Time and time again, I see MSPs being caught out in this way. Tey
believe they have the visibility they need because they’re using the right tools and connecting the right systems, when all they are doing is automating the movement of imperfect information. Reports can look sophisticated, but if the data behind them is
lacking, they create an incomplete and misleading picture of the business and mask loss-making contracts for months or years on end.
Organisations should always look through a private equity lens Tis is why MSPs can derive significant value from viewing their own business through a private equity lens. Indeed, right now, there’s a spotlight on the MSP market from private equity investors, with many of the strongest targets already acquired. In each case, financial records are always scrutinised. Investors
will always look to buy at the right price, and that price will be determined by the returns that they expect to gain. If a business cannot demonstrate that it can consistently deliver strong profits, investors are likely to pass it by in search of another that meets their requirements and financial criteria. From a buyer’s perspective, if a company doesn’t have confidence in its own figures, why should they?
www.pcr-online.biz This is why it’s good to think about your own business
like an acquiring company. Indeed, having a good grasp of the numbers not only provides the visibility needed to instil confidence in buyers, but also gives companies the justification and confidence to address areas of non- profitability. Once an MSP has deduced that supporting a client is a
loss-making exercise, they have two levers: cut the costs and resources involved or increase their prices. Both can feel unnatural at a time in which the MSP market is experiencing a race to the bottom, yet it is often the right course of action. An owner who believes the company makes £10,000 a
month may not feel motivated to put up prices. An adjusted loss of £1,000 creates a much clearer imperative to act, assuming the company is busy, and there are no appropriate costs left to remove. For those who are hesitant, engaging with peers can help ease
concerns by exploring how others have successfully increased prices. Oſten, the key is to prepare for client pushback, ensure any increases are justifiable, and clearly demonstrate and communicate the value you bring to the table.
The underlying principles of creating a valuable MSP won’t change In this sense, a strong, profitable company that is operationally sound and able to demonstrate consistent performance will attract the attention of investors and private equity. Yet it’s not even about selling up. Exit disciplines produce a better company even if no sale is planned. The best advice I can give to MSPs is to behave like a future
seller – always act as if they’re working towards a sale. It’s a highly effective way of informing what you should be doing differently to create a more effective and attractive company. Monthly reporting allows an owner to identify and address
problems quickly. Quarterly accounts can leave the business four months behind the point when action could have been taken. And starting with the correct pricing is also easier than reversing years of under-pricing. Pricing should fund the full cost of service delivery and a
healthy margin, even if the owner initially delivers the service personally. Retaining some profit helps build reserves for future peaks and troughs in profitability and cash flow. Every business should have started on this path from day
one. But the next best option is to start today. Yes, the direction of travel for MSPs is changing, and that
brings uncertainty. There is no denying that new technologies and services will emerge in the MSP sphere as AI and automation continue to evolve. But the underlying principles of creating a valuable MSP will remain broadly consistent. The ability to demonstrate appropriate pricing, healthy
margins, low customer and staff attrition, profitable contracts supported by accurate PSA data, low owner dependence, sufficient reserves and healthy cash flow are all signs of a healthy business. Sale or no sale, these are the things that every MSP should be working towards.
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