Mastering finance as an MSP
Finance is a world of P&L, balance sheets and cash flow statements. But does that mean that we should leave finance solely to finance professionals? Not in our opinion; for us it is imperative that throughout the organization people understand the finance discipline. Let us explain why.
Being in control
Ultimately, being financially savvy is being in control of ‘the numbers’ so as an MD or MT you can make rational decisions. Understanding the numbers is essential if you want to improve your company’s performance and the value you create. You also have to understand the underlying factors that influence the value your business has for a potential buyer. These factors include for example having long-term contracts with clients, or very well-performing teams. That’s where TSH’s so-called playbooks come into place.
From TSH’s deep understanding on what ‘value creation’ means for MSP’s and many years of experience in the IT industry, we have created a number of so-called playbooks. These are collections of best practices on how to run specific operations (including finance) within a managed service provider. They are used within TSH companies to increase their performance, but are also used to determine if we can find and create future additional value within an organization TSH is looking to acquire.
Evaluating financial performance
The financial performance of the TSH companies is measured on a combination of profitability and growth. Growing a business costs money, so a growing company can have a lower profitability percentage than a company that does not grow. What’s interesting is how this KPI is used. It’s not to judge people, but mainly shows where there is room for improvement in terms of financial performance. As such, the figures are not an end in themselves, but rather an invitation to engage in conversation with another TSH company that scores better on specific underlying base rates.
Take time for finance as a habit
Our advice to MD’s: take time for finance on a regular base. Lean back, think about the top priorities for your organization. Then evaluate if the whole team is working on the right things, and if the management team frees up enough time for improvements. By doing this on a regular base, you can ensure excellent operational performance and drive the necessary speed of innovation at the same time.
Improve your financial position
Always look at ways to improve your financial position, since ‘money in the bank’ is the true fuel for growth. You can achieve this by re-evaluating your pricing and packaging strategy, for which we at TSH have a value based pricing playbook. But higher selling prices don’t mean much if you don’t have your costs under control. See if you can, do negotiate better pricing with your suppliers. What we see within TSH is that our combined purchasing volume can help drive those discussions effectively. And last but not least: have the finance department focus on setting and managing the payment terms, because you can’t spend any money you haven’t received yet.
Do and learn
Makes your objectives as specific as possible, and if the improvement is significant in terms of impact or desired outcome then start with making a business case. Set SMART objectives per quarter, so you divide bigger projects or improvements into smaller, better manageable sub projects. Adopt best practices and talk to your peers. This is something we really value and cultivate within TSH: we get better as a team through bright individuals that talk to, and learn from each other.
And keep track of improvement projects, and learn from them. Because not all improvements may produce the results you were aiming at, within the timeframe and budget you estimated. By adopting this cadence, you build an improvement process that improves itself too – and you’ll be able to create more value for customers and the organization on a structural base.
Take your team on the journey
As we wrote before: finance is not just of interest to the finance team. But how do you take them along on this journey? From our experience we can say there is often a lot of interest in the financial aspects, it is more about presenting the information in an accessible way. The numbers in a ledger won’t mean much to a lot of your staff, so talk about things they do recognize and understand. Give people insight into the value add they bring to the company. What does a billable ticket yield? What do we earn on your project? Our advice: don’t be afraid to share numbers, explain things if people don’t understand them and make sure you do this frequently.
Want to learn more? Talk to us.
In every entrepreneurial life, there comes a moment where you have to create time to look over your shoulder to touch base. If that moment is now, then it’s time to meet each other soon. Since bright minds think alike, we are looking forward to meet with you.
Finance Director BU Horizontal
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