Know your numbers. Bookkeeping provides the foundation for making critical decisions about your MSP business, like what products, services, and customers are most profitable—and which ones are not. Your numbers can tell you when to hire, or when to tighten your belt. They can show you if you’re on track to grow your business, or off course and heading for disaster. They can help you with strategic planning, provide you with sales tools, and assist in getting your pricing right.
Yet many MSPs, especially smaller ones, struggle with accounting. It’s not their area of expertise and they’re busy keeping their SMB clients’ IT systems up and running. But by avoiding common pitfalls and following some easy tips, you can make the numbers work for you.
The No. 1 challenge is bookkeeping. Most IT business owners hate it, so they don’t do it and fall behind. Then you never have the benefit of using the information in the accounting system to make business decisions.
In particular, capturing all of your costs and billing that back to the customer is one area that often falls through the cracks. No business owner is going to miss billing that $10,000 server, but if you put a $200 router on your American Express card and plan to bill the customer later, and then wait months before you look at your card statement, you may not remember what the $200 item was for. Do that five times and suddenly you’re behind $1,000. By not recordingthose costs in your accounting system as they come in, you miss invoicing opportunities.
Another challenge is using and understanding financial reports. You can run a profit and loss (P&L) report, for example, but do you understand what it’s telling you? How much are you making on product sales vs. recurring services? Which services are the most profitable, so you can focus on them?
If your bookkeeping is not accurate or complete, however, those numbers are meaningless. As a result, many MSPs don’t bother running the P&L.
Tax planning can be another struggle. Whether you’re having a great year or a poor year, without planning you have no idea how much money you’re going to owe. There’s very little tax planning that can be done post mortem; once the year closes your options are limited. Also, your tax preparer may not understand the IT business, or thinks you’re too small to give you the time you need.
Tips and Advice
To strengthen your financial management, follow these eight tips:
Have a good relationship with your tax preparer or accountant, and meet with him or her regularly. If your preparer is not giving you the time you need, or doesn’t understand your business, find someone else. And don’t wait until after January to think about taxes. Plan ahead so you know how much money you have to spend, or if there is a tax shelter you can put in place to minimize what you will owe.
Keep your books up to date and accurate.
Run financial reports on a regular basis.
Use your numbers as sales tools and goals. When you know which lines of business or which services have better margins, you can have your sales team focus on those areas and set goals for new business.
Get help. If you hire a CFO or a CPA in-house, be prepared to pay the salaries they warrant. If you’re a smaller MSP, start with an admin and train the person to do some bookkeeping. You can get away with an admin/office manager to handle those tasks and then have an accountant come in to review your bank reconciliation and financial planning.
Use your PSA system to capture as much information as that PSA offers and run resource utilization reports. You need to know your employees’ availability and billable time. It can help you to make hiring and expansion decisions.
Review contracts and pricing annually to make sure you stay profitable. You’re not paying your employees the same amount you did five years ago, so why should your customers pay the same rate? Make sure every client company pays its fair share.
Block out a few hours each month to review your books.
The more you really look at your numbers, and the more you play with them and run P&Ls and other financial reports, it becomes fun. Your numbers will tell you why you spent 10 more hours than normal on a customer, or what your fixed expense are. Your numbers can help you spot trends and opportunities to grow your business. They can also help you spot problems much sooner so you can stay in business.
Rayanne M. Buchianico, EA
ABC Solutions LLC
LOCATION Dunedin, Fla.
NUMBER OF EMPLOYEES 5, and growing
COMPANY FOCUS We provide full service accounting and tax services to MSPs throughout the U.S. and Canada, as well as Autotask consulting.
FAVORITE PART OF MY JOB Accounting systems conversions. I also enjoy helping MSPs go from where they are to where they want to be, and knowing I’m an integral piece to getting them there.
LEAST FAVORITE PART Doing catch-up bookkeeping work for a client who needs to go back 12 months so they can complete a tax return.
WHAT PEOPLE WOULD BE SURPRISED TO KNOW ABOUT ME I work closely with local dog rescues, and have two rescue dogs, a Border Collie and a Plott hound.