Newsletter 1.2 – Financial Literacy for MSPs

Reflecting on my journey in the managed services industry, I recall a pivotal moment at my former company. We discovered an unexpected cost in our project team’s expenses during our February financial review process. Catching this early saved us about a thousand dollars monthly for the rest of the year. This experience underscored the importance of financial vigilance in business.

Having a solid process and grasp of the numbers prevented us from overspending for much longer. One of the things I speak about frequently is the need for financial awareness and acumen. In fact, I’ll be on stage at Pax8 Beyond talking about Budgeting. I teach three finance courses at Pax8, and have recorded several videos about finance in the 15-ish months I’ve been doing the whole YouTube thing.

Finance is one of the core components to running a successful MSP. If you don’t feel comfortable with managing your finances in your small business I’ll happily do what I can to help you level up your skillset.

Common MSP Financial Challenges

Like I said before, many MSPs start as a technician that starts a business. There are a few things that often get in the way of financial success.

• Underpricing Products and Services: Not making enough profit due to undervaluing services and products. Do NOT make assumptions that your services are too expensive. Price your agreements, services, and products you sell with margin baked in at every level.
• Not Managing COGS and Expenses: Managing your outflows on your finances is as important as managing the revenue coming in.
• Not Knowing What to Measure: I’ve talked to FAR too many MSPs that have gauged the success of their business by having cash in the bank at the end of the month. This cannot be how you gauge success.

Proposing Solutions

To address these challenges, MSPs should focus on:

• Regular Financial Reviews: Establish a routine for monthly and quarterly reviews of profit and loss statements, balance sheets, and budget variances. Getting good at this will ensure that you’re catching issues early so you aren’t caught flat footed.
• Understanding Key Metrics: Pay attention to gross margin and EBITDA to gauge business performance. I like to say that managing Gross Margin is the best indicator of your financial performance. Generate a healthy Gross Margin percent and your EBITDA/Net Profit will follow.
• Strategic Planning: As you get more comfortable with your financial reports you will make better use of the data. It allows you to make informed decisions about investments, hiring, and service offerings.

One area that we used to struggle with (and I see plenty of MSPs fall into the same trap) is tool overload. Signing up for too many tools without proper cost management, increasing expenses faster than revenue can really impact your bottom line. Now that we’re well into 2025’s conference season it’s important to be careful to not sign up for every tool under the sun because it sounds cool. Be mindful of this as you consider new tools to add to your stack. Don’t forget that implementing new tools has an impact on your staff as well.

Building a Financial Routine

If you don’t already have a financial review routine and process built, consider this email the impetus to start. Start with #1 and work your way down the list to level up the process as you build confidence.

1. Monthly and Quarterly P&L Review: Understand what happened in your business over the last month and quarter. Looking at your P&L over different time horizons is important.
2. Monthly Balance Sheet Review: Understand where the money lives within your business on a monthly basis.
3. Annual Budget Creation: Plan and set goals for the upcoming year, ensuring alignment with financial objectives.
4. Monthly Budget Variance Review: Review your budget along with your P&L and track progress on your budget. If you aren’t hitting your budget numbers it’s time to adjust what you’re doing to move the numbers in the right direction.

I’ll continue to make videos and other content around these items, but know that this is a solid progression through leveling up your financial review process.

Looking Ahead

By developing a strong financial routine, you will set yourself apart from less mature counterparts. This proactive approach not only safeguards against financial pitfalls but also positions businesses for growth and success.

Links:

• MSP Finance Video Playlist (Free)
• Pax8 Course – Getting Your Finances in Order ($$$)
• Pax8 Course – Leveling Up Your Finances ($$$)
• Pax8 Course – Finance for Service Managers ($$$)

Recent Videos

I’ve been making videos for about 15-16 months so far, and I find that I talk about a topic for a few videos and shift to another topic in the MSP space. Over the past several weeks I’ve spent time on both talking about setting up your Service Managers for Success and building up the value of your business to plan for your eventual exit of the business.

Company Valuation and Exit Plan

• Building Your Exit Plan: https://youtu.be/QyEkb40BU8w
• Driving Value Into Your Business: https://youtu.be/8xgjPzCjLlo

Service Manager

• Service Manager 101 from the Owner Perspective: https://youtu.be/wj76v87etPM
• Service Manager 101 from the Service Manager Perspective: https://youtu.be/cF8rYKhMsL0

Connect With Me

• LinkedIn: https://linkedin.com/in/ahannemann
• YouTube Channel: https://youtube.com/@adam-rambles

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Adam