Many things have happened since the start of 2020. But the pandemic gets an honorable mention because it brought the world to a standstill. What was its impact on the MSP market and how can we navigate the new normal?
Over the past few months, managed service providers (MSPs) have reorganized business operations, set up remote workforce, and made some tough financial decisions.
While a few managed service providers have reported business growth against the backdrop of economic crisis and the pandemic, many are shutting down their businesses or being acquired by bigger fellow MSPs. Without a doubt, it is a crucial time for MSP leaders like you to navigate carefully. That’s exactly what we’re going to do.
Together, let's identify ways to keep your MSP business on a safe pathway through disruption and position it for success in the 'new normal'. This will be a three-part series so that we have enough space to discuss each aspect in detail.
Challenges or opportunities?
I didn't think I'd say this — the pandemic turned out to be the perfect storm. It has set the stage for dramatic changes that won't go away. But it has also presented the MSP community with opportunities.
A report from last year shows that one of the things holding the MSP industry back was trust. However, the pandemic has provided managed service providers the opportunity to establish trust and reliability by being there for the client during such unprecedented times.
You put on a cape and fly in every time there‘s a problem — every time a printer won’t work or a PC won’t boot up. You swoop in and solve the problem. You’ve been doing it for a long time and during COVID, it’s been no different.
As Shawn points out, every time something breaks, MSPs 'swoop' in and fix it. Managed service providers have been doing this all along. Why should this time be any different?
Because business continuity plans and remote work are a very real part of this "new normal." Today, it isn't about fixing what is broken. It is about preventing something from breaking in the first place; ensuring clients' businesses don't come to a halt.
MSPs were expected to swoop in and ensure that business operations come to a standstill. And so, you had the unique opportunity to demonstrate their value during the coronavirus pandemic.
During a time when organizations were pushed to rethink their operations, come up with business continuity plans, and go remote overnight, MSPs rolled up their sleeves and were on the frontline providing all the necessary support to ensure their clients' businesses stayed operational. But what about saving their own businesses?
You‘re a superhero wearing a cape, but you’re not invincible.
We need to start somewhere
While managed service providers for the most part have been successful in weathering the initial crisis, it's important to pause and evaluate how to adapt and evolve your business models.Right from revenue, service delivery, sales and marketing strategy, digital transformation to the very tools you use, they need to think whether their existing business model will help operate from a position of strength.
Let's bear in mind — if MSPs don't seize these opportunities now, stabilize their businesses, and plan ahead, they will soon be outdated and disappear.
The rising economic crisis has put a strain on the global markets. For MSPs, there is an enormous pressure to preserve cash, shed operational expenses, identify burn rates, and make it easy for themselves to get paid.
Tales of MSPs experiencing unprecedented financial shortfalls because clients go bankrupt or experience cash flow issues are all too common today. Managed service providers are left scrambling to make up the lost revenue. Worse yet, local economic factors are even less predictable.
So how do you plan on surviving this?
Understand financial health
You need to understand the financial health of the business so that you can identify what you need to prioritize and accomplish in the upcoming months.
Run a weekly review of accounts receivables. This will help you spot negative overall trends and individual client issues before they blow out of proportion.
The best way to reduce financial risk is to quickly address outstanding balances.
Also, it is best to have a single-pane-of-glass view of all your financial data. Right from unbilled goods/services, accounts receivables, effective rates, gross margins, to ROI.
Downloadable resource: MNP's running cashflow template
Become a student of numbers
Cash is not just the amount in your checking account. And that isn't enough information about your finances. First, get all the accounting entries up-to-date. Look at the data from accounting and other management systems.
Throw the shoebox approach away — it's no time for a slow declutter of your balance sheet.
Cash is the real firewall — free cash flow is cash available that is not committed to anything. Hence, it's important to monitor available cash flow daily. Payment automation is a wise first step towards these goals.
Watch accounts receivable numbers closely. Make it a point of talking with customers early and often and determine the last date to cough up the invoices. One of the ways to optimize existing financial processes is by streamlining through Accounts Receivable (AR) automation so that nothing falls through the cracks. Nudge clients to opt for automatic payment to reduce delays in accounts receivables.
With the option to send a single invoice, your finance team receives fewer questions regarding each individual invoice. For your clients, it's a relief to see all everything they need to pay for, all in one invoice.
Speaking of payments, make sure you pay your bills and your employees on time too.
Assess your portfolio risk
Understanding your company's financial health isn't just about how strong your balance sheet is. Successful MSPs regularly spend time evaluating risks, reviewing key metrics, assessing the options, and adjusting their plans accordingly. Consider the following two questions:
- If the largest employer in your city or town were to shut shop tomorrow, how would it affect your MSP business?
- Do you or your clients solely rely on the income of only a handful of customers?
The answer to these two questions will help you examine your financial stability.
Think beyond customer churn
You need to think beyond the impact of customer churn or how the delay in payments can affect your revenue. You need to reshape your business to match up to today's realities and determine what kind of activities will generate the maximum financial impact on your business.
Tap into government support programs
Government support programs are continuously changing and extending. These key measures differ based on the region or country you are in. Take a quick look at the list of locally-offered support programs and see how you can leverage them to stay afloat.
Replace or add revenue streams
Get a little creative with your revenue sources. Begin by mapping out your best- and worst-case scenarios and then strategize how you will address them. While you do this exercise, you need to consider how you will protect your current revenue streams, find alternative revenue streams, and create new revenue streams for your business.
Think of ways in which you can diversify your revenue sources and identify new opportunities.
You can also think about replacing services that take longer to convert an order to cash. Remember that financial liquidity will become important when determining which services to take to market.
Pivot. Pivot. Pivot
Yes, it's important to stay afloat. But don't just think about surviving the current circumstances. This about how you can pivot to provide services outside your current service offerings. For example, cybersecurity is a hot revenue source due to its high demand after the transition to remote work. Should you consider offering security as a service?
Re-evaluate business goals
If you are re-evaluating your service offerings or your business goals, the first place to start is by adjusting your accounting processes to suit the current situation. But how do you know if you need to do this exercise?
Consider the following questions:
- Is your data in sync between your operational, financial, and accounting systems?
- Do you manage expenses electronically?
- Do you have a cash flow forecast?
- Do you report profitability monthly?
- What are the profit and gross margin of each line of business?
If the answer to all or most of these questions is 'no', then it's time to re-evaluate your processes.
Geared with accurate information about your finances, you can
- Identify where and how you want to allocate your resources
- Create new revenue streams
- Define new opportunities
- Remove inefficienciesInvest in the right tools
- Optimize your service delivery
That said, there are various other aspects of your business that you need to address. In part 2 of this series, we'll be discussing how to deliver services to the new remote workforce, cloud acceleration, and whether or not it's a good time for MSPs to transition to MSSPs.
Related reading: Benefits of an MSP platform