When you embark on the journey of starting a business, expecting the unexpected can be the difference between success and failure. With unpredictable market conditions, macroeconomic policy shifts, and the volatility of consumer demand, maintaining a cash reserve is often the lifeline entrepreneurs need when times get tough. This especially applies to MSPs, who must adapt to the market conditions of their own niche and of their clients.
Whether you're in the early stages of your business journey or are looking to get more strategic about managing your cash reserves, here are some tips you can follow to make sure you stay ahead of the curve.
Create a cash team
If you’re focused on building a suite of digital products and services, you may not have the time or expertise to take on cash management alone. That's why it's important to assemble a team of experts who can help you stay on top of cash flow, track operational expenses, and advise you when it comes to budgeting. Designating a team of people to focus on your cash flow reserve can provide a much-needed accountability structure, allowing you to focus on delivering products and services your customers will love.
When creating a team to manage your cash flow, these are the types of roles you should be looking for:
- A financial advisor who can help you make decisions about your finances.
- An accountant or bookkeeper to manage your day-to-day transactions and bookkeeping.
- An operations specialist, who can help you streamline processes and identify areas where you can cut costs.
- A cash flow manager to help you better understand your current financial situation and make more informed decisions.
Plan to fail
One of the most important lessons an entrepreneur can learn is that failure is inevitable. In fact, many of the most influential innovators, from Thomas Edison to Steve Jobs overcame failure and adversity before finding success.
Even if you have the best team and resources at your disposal, things will still go wrong. To be prepared for any eventuality, you should have a plan in place to help keep your business afloat if the unexpected happens. Building a reserve of funds that you can tap into if necessary is an important part of this plan and will help you manage any financial disruptions that may occur. It’s also a good idea to try and consider some of the potential financial hurdles you are likely to deal with and adapt accordingly.
Be smart and conservative
Being proactive and taking calculated risks is key to staying competitive, but when it comes to cash management, it's important to be conservative. Prioritize investments that will create the most value for your business. Instead of spending money on frivolous expenses, focus on streamlining operations and cutting costs to build up your business cash reserves.
Here are some examples of smart, conservative business practices for MSPs:
- Develop standard operating procedures (SOPs) for common processes and services. SOPs can help to ensure that your team members are following consistent procedures and delivering consistent results.
- Use a professional services automation (PSA) tool to manage your operations. A PSA tool can help you to streamline your workflow, track your time and expenses, and manage your projects more effectively.
- Establish service level agreements (SLAs) with your clients. SLAs can help to set clear expectations for your clients regarding the level of service they can expect to receive.
- Focus on proactive maintenance and monitoring of your digital infrastructure. By monitoring your clients' systems and networks on an ongoing basis, you can identify potential issues before they become major problems, which can reduce downtime and minimize the impact of any issues that do arise.
Track your finances
Knowing where your money is going is a must for any business and tracking your cash flow is the best way to do that. As your business begins to scale, services like automated invoicing can help you manage your finances more effectively and efficiently. Automation tools allow you to track payments, view summaries of current income, and get detailed reports on how much money is going in and out of your business.
Ensure that you're getting paid on time by following the steps outlined in our Automated Invoicing Checklist.
Draw loans before you need them
Market conditions and monetary policy can change quickly, and it's important to be prepared for these shifts. If you think an economic downturn might be on the horizon, consider drawing a loan before you need it. It’s always good to have an understanding of different types of loans available and stay up to date with internal metrics to indicate the amount of financing you should seek.
As a start, evaluate your current cash on hand, accounts receivable, your sales pipeline, and current industry trends to determine if and how large of a loan is right for you.
Have a contingency plan
Expecting the unexpected doesn't mean just having a cash reserve ready to go. You should also have a plan in place for how you're going to manage disruptions or changes in the market. A business continuity plan (BCP) can help you anticipate risks, assess potential problems, and identify the right steps to take when things don't go as expected.
Here are five key points that should be included in your continuity plan:
- Define the scope: A good continuity plan should clearly define the scope of the plan, including the services, systems, and data that are critical to the business. This can help to prioritize recovery efforts and ensure that essential functions are restored as quickly as possible.
- Identify potential risks: MSPs should identify potential risks that could disrupt their business, such as natural disasters, cyber-attacks, or equipment failure. It’s important to ensure that the BCP is comprehensive and addresses all potential threats.
- Develop a recovery strategy: The BCP should include a detailed backup and disaster recovery strategy that outlines the steps that will be taken to restore critical systems and services. This should include a prioritization plan, as well as specific procedures and timelines for recovery efforts.
- Identify roles and responsibilities: The BCP should clearly define the roles and responsibilities of each member of the team, including who is responsible for activating the BCP, who is responsible for executing specific recovery tasks, and who is responsible for communicating with clients and stakeholders.
- Test and update the plan: The BCP should be regularly tested and updated to ensure that it remains effective and relevant. Testing can help to identify potential gaps or weaknesses in the plan, while updates can ensure that the BCP reflects changes in the business, such as new services, systems, or risks.
Streamline collections processes
Automating your sales and collection processes can help you make sure customers are paying on time and eliminate unnecessary costs. Streamlining the collections process will not only help you get paid faster, but also helps you manage your business cash reserves more effectively.
ConnectWise’s recent acquisition of Wise-Sync creates a great opportunity here for MSPs. Wise-Sync now integrates with ConnectWise PSA and ConnectWise CPQ software to help technology service providers automate the quote, proposal, and collections process by leveraging quote templates, sales notifications, and procurement automation. The integrated payment platform Wise-Pay can now also be seamlessly integrated to create an automated invoice cycle.
CPQ software also provides real-time product and sales data, helping to create a predictable and consistent experience for your critical business operations.
Always audit for unnecessary spending
It's easy to let expenses slip through the cracks, but that doesn't mean you should. Auditing your spending regularly can help identify any unnecessary expenses and cut them out before they become a major problem. Take the time to review your budget to make sure you’re not spending too much.
Some things to watch out for include:
- Overstaffing
- Ineffective marketing expenses
- Redundant services and vendors
- Inefficient sales and service processes
Turn to your peers
It takes a village to build a business, and turning to your peers for advice can be an invaluable asset. Reach out to other technology service providers who have been in the same situation and ask them how they managed their finances through volatile times. Joining a peer group can provide invaluable insight, allowing you to leverage others' successes and failures to help you make the right decisions.
Invest in software
Keeping your business financially stable can be challenging, but with the right strategies in place, you can protect yourself from market volatility and build a strong financial foundation. By planning ahead, establishing targets, tracking finances, and streamlining sales processes, you can better prepare for any unexpected financial disruptions and ensure that your business is in a strong position to weather any storm.
ConnectWise has a comprehensive suite of tools to help technology service providers manage their cash reserves and simplify the financial process. Our suite of products helps you automate billing, project management, and other processes so that you can focus on the things that matter most.
Learn more about ConnectWise’s Business Management software for MSPs can help optimize all areas of your technology service provider business, or request a demo today.
