Join financial expert Brandi Bonds for an in-depth look at transforming your MSP’s budgeting approach from basic bookkeeping to strategic growth enablement. Whether you’re a solo MSP or managing a growing team, learn proven strategies for resource allocation, revenue forecasting, and strategic cost management.
Key Takeaways
- Pipeline-driven forecasting predicts actual growth potential
- Resource allocation optimization prevents costly overhiring
- Strategic cost management improves profitability
- Acquisition preparation maximizes business value
- Cash flow management strategies reduce financial strain
Transcript:
Steve: [00:00:00] We are very excited to have you guys here today, mainly because it’s December 19th, and we’re just excited that you are still working, uh, because, because that’s, that’s the, that’s the thing when I ran my MSP, like I kind of shut down from.
Christmas Adam, I call it Christmas Adam, the day before Christmas Eve, you know, because Adam came before Eve. Anyway, so Christmas Adam through New Year’s Day, I just shut down the whole MSP. So, uh, I’m sure, I’m sure my customers loved that.
Sonja: Yeah, none of your clients had issues.
Steve: And the great thing is I had a lot of manufacturing clients, so they all shut down too.
Great. Yeah, so, hey, welcome, welcome everyone to Office Hours by Alternative Payments. While everyone filters in, I’m going to activate a poll. Um, I, I promise, [00:01:00] we are not going to do anything nefarious with your poll answers, okay? Um, I, I just am genuinely curious who we are presenting to, because an MSP that’s making 200, is interested in learning something very different from an MSP making 200 million dollars, right?
So if, if you could just take like two minutes, answer all of the poll questions, that way we can make sure we are tailoring future office hours, events, and events. To you and people like you, that would be super great. Um, we will not be adding you to a sales pipeline unless you answer questions five or six, With yes.
Okay. So if you answer questions five or six with yes, we will reach out. Otherwise we’re not going to pester you. [00:02:00] Okay. Cause I, I ran an MSP. I know that sucks. Uh, and, and I don’t, I don’t want us to be the bane of your existence. Uh, so while, while you guys do the poll and while everyone filters in, uh, let’s see here, I’m just going to keep.
kind of going through. We’ll have a couple more polls throughout the event. Again, nothing nefarious. One of them is going to literally be because we don’t have enough time to teach you all the things, so we want to know what you guys are interested in hearing about for the last thing. I’m going to leave this poll up for just a little bit longer to make sure you guys have an opportunity to answer.
At the end of the event, there’s going to be an anonymous two question survey. It’s going to gauge how you liked the content and what we can do better next time. Um, I’ve told Zoom to make it anonymous. I will have no idea who says what on that one. With that said, I’m excited to introduce to [00:03:00] all of you, our panel.
First, we have Brandy Bonds. Uh, for me, she’s down in the bottom. She’s the managing partner at Next Level Now. And then we also have Sonia Pomerleau. Vice President of Sales at Next Level now, and you all probably know me, I’m Steve Taylor. I do content marketing here at Alternative Payments. I’m also the host of RocketMSP, a podcast for MSPs.
It is December 19th. Some of you are swamped with questions. project work. Others are already checked out with Christmas music playing in that little jukebox in the back of your head. I’ve got Christmas happening on the lights behind me, and I’ll be honest, I can’t wait to have my family open up their gifts next week because gift giving, it’s kind of my love language.
But back when I ran my MSP, I had a very big Basic budget, Brandy. Money in, greater than sign, money out. Okay. That was it. I didn’t have a plan for what I would spend on advertising. I [00:04:00] definitely didn’t try to figure out what I would spend on marketing if I increased my revenue and profitability by a certain figure.
And I couldn’t tell you where to begin with predicting churn and lost revenue. So. With that said, I know you’ve put together an awesome presentation, and I’m going to do my best to add some color so we can have some fun while learning about budgeting and forecasting. So tell me, how sad did all of that make you?
Brandi: Ah, it’s normal, it’s normal, I’m not sad at all. And what I will say, that’s how most businesses start, right? They don’t know what they don’t know until you run into a challenge, cash flow. You want to grow. You need to hire people and you don’t know how many people to hire. Or you get to the end game where you want to either sell or acquire another business and you need to know what, what you need to do.
So I will say it’s not sad at all. [00:05:00] I appreciate you sharing and you’re not alone. So I’m really, I was telling Steve earlier, this is my, my geek out, um, time because I love budgeting. I love to be able to help people plan their business. And I’ll start just by telling you a little bit about Next Level and then we’ll jump into the good stuff.
I do want to make sure that everybody feels free to ask questions. I want there to be value here for you. This is a small gift I can give to everybody and I want to make it meaningful for you guys. So please feel free to ask as many questions as you want. I’ll answer as many as I can. You guys will get this.
Slide deck, if you want it, just let us know. We’ll, we’ll send it on over. So, next level I’ll actually
Steve: put the slide deck on our website for you guys to download and, you know, that’ll, that’ll be easy. And then, uh, if [00:06:00] you guys can, use the Q& A section for questions and then use the chat to just chat. Um, we, we leave the chat open because we want you guys to You know be able to have fun and communicate with each other.
Brandi: Perfect. Thanks. So NextLevel’s been working with MSPs now for about 10 years. My background in MSPs is about 20 years. So I’ve seen the the full gamut of of the industry. And we currently have 40 active client members. We operate on a fixed fee. We’ve been in business now since 2022. No, I am not a founding member.
I’d be too young. That’s what I tell myself.
We have 30 employees, and we focus a lot on the technology, so I’m going to reference various technologies that you can use in your budgeting process. Any questions around them, feel free to let [00:07:00] me know, but we are really focused, and one of our niches is the MSP industry because we love it so. So today, we’re going to talk about budgeting basics.
Advanced Revenue Forecasting, Strategic Cost Management, Growth Investment Planning, and KPIs, and then any Q& A, but I do encourage, again, Q& A throughout the process. Sonja will be monitoring that, and Steve, and just let me know, because I don’t see it in my present, presenting this right now.
Steve: Um,
Brandi: but I do want to, go ahead.
Steve: I was just saying you got it.
Brandi: Alright, awesome. So, I just want to come over and talk about some key terms that you may hear. So, a budget is a financial plan that typically is set up at the beginning of a year or a beginning of a period and doesn’t change. That’s what a budget is. A forecast is dynamic and [00:08:00] updates regularly.
You take that budget and then you update it based on the business conditions changing. And what that does is allows you to see your trends better and really, some people set up a budget in, in December. for January to start. Come June, your business may look very different than when you started, so when you do your budget to actual comparisons, They may be widely different, and you say, oh, that’s because we got these clients, we added these employees, this business went away.
But it doesn’t really help you plan well for the future. So we recommend you establish a budget and then have a dynamic forecast that really is trending how your business is going in real time. And that allows you to estimate spending, understand when you need cash. Because the [00:09:00] best time to get a line of credit, just in case anybody doesn’t know, is when you don’t need it, not when you need it.
It’ll be very hard to get a line of credit when you need it. Tools. To do a good budget, you need your general ledger system, your CRM system, ConnectWise, Fathom, PlanGuru, Halo. Pick it. Use all your tools. Gather all your data in order to do the best budget. And then who should be involved? Business owners.
You need to be involved in the, in the budgeting system and the forecasting, your finance team, sales operations, The best budgets and models include all stakeholders that influence the outcomes. If you set a budget, it does not mean, when I say that, it does not mean that you cannot create a budget from [00:10:00] a top down.
So, what that means is, a CFO and a business owner can create a budget. And then share that with your operations and sales team and say, here is the budget and our targets for the year. That is the, that’s perfectly acceptable. But if you don’t engage your sales and operations team in the budget process, You may never meet that budget.
You may never meet that forecast because they influence the outcome, right? It’s like trying to save, say again, Steve?
Steve: That makes perfect sense.
Brandi: Yeah, so think of it in your personal life, too. If you’re saving to buy a house, but you don’t share what that savings goal is, Your spouse may never help you get there.
They may spend money on Amazon, which is like Jeff Bezos is at my house all the time, right? But if, if everybody is involved in what you’re [00:11:00] trying to do, you’re gonna, you’re gonna meet those outcomes. And then when do you do this? Your budget you want to do annually? And for forecasts, those should be updated quarterly or more frequently.
Okay?
Steve: Now, what about, um, MSPs that are just one man shops? Is, does any of this change? I, I imagine the, the big thing that’s going to change is probably the tools. They’re not going to have as many tools available to them because they’re not going to spend money on a lot of this stuff and then they’re probably dealing with smaller numbers, too.
Brandi: Smaller numbers, but yeah, it does matter because, especially if you have a goal that you want to try and reach, and that’s what we’re going to talk about here, right? So, even if you’re a one person MSP, Maybe you’re looking to try and get to a place where you could pay yourself a salary or a [00:12:00] salary that you’re worth.
Right? Versus just taking whatever’s left. Or maybe you want to know when to hire your first tech. Developing a model is part of a business plan that helps you lay out where you’re trying to go and gives you a roadmap to get there. So I encourage budgets for everyone. I have a personal budget in my home and that’s really small for a business, right?
But it helps me map out where Can I go on vacation? Can I do a home improvement project? Can I buy a new car or pay for car repairs that I know are coming? So it, it works for businesses and for individuals. Okay, so we’re gonna talk now, get into some of the advance and I’ll, and I’ll rely on you guys to let me know when I need to zip it and answer some questions, but Advanced Revenue Forecasting is the [00:13:00] start and the basis for all good MSP modeling.
Right, so what you need to do is you need to assess your pipeline data and be able to see what do you have coming in. One of the biggest mistakes I have seen In modeling is MSPs will look at their managed service contracts or their projects and say, we’re going to grow by 25%. And they add 25%. Well, I want to talk a little bit about about why that’s not great.
Because in order to develop that 25 percent growth, you need to know how are you going to gain it, right? So by looking at what’s in your pipeline, And what a pipeline is, is who are you selling to? A lot of times I see business owners, upwards of 6 million IT companies that say, Oh, I have it all in my head.[00:14:00]
Well, writing it down helps you really assess the probability and determining What’s in your pipeline, how likely is it to close, and what does that revenue correlate to? It also helps you look at what does your customer life cycle look like when you do this advanced forecasting and understand some of your renewal patterns and when you can upsell to customers.
So, when doing this for your revenue, you want to look at your existing contracts, That’s model one. Right? Who are the customers? What do the contracts look like? When do they expire? And when does the revenue expected to stop? So that you know when you need to do your renewals. How often do we see renewals that have come, if it’s not nevergreen, meaning it renews automatically?
How many times do you [00:15:00] go, oh, that contract’s out of renewal and I gotta get that and it’s three months later? You want to be on top of your business and making sure that if you don’t have an evergreen clause, which I recommend, which is on an automatic renewal built into your contract, That you reach out and it gives you an opportunity to connect with your customers and potentially upsell or add on if their business has grown.
So that’s number one. Number two is new business. And that’s where you say, okay, how many customers am I talking to? Our businesses are, am I talking to that are in various stages of the sales pipeline and, and when will I close them? And how many do I need to talk to in order to generate revenue? Right, and we’re going to go into that one really detailed in the next slide.
But then the other is projects and add [00:16:00] ons. So those typically come from your existing customers. So you want to know what of your existing customers do you know that you can anticipate in new revenue in the coming year. One of the models that I see a lot are you look at if you’re a managed service provider, or a security provider, you may say for every fixed fee contract I have, I know I’m going to get 3 percent or 5 percent of revenue in a project for those customers.
And that, once you know what your trends are, which is looking backwards, you can come up with that number. Okay, any questions so far? I’m going to move on. So one of the things I get asked a lot is the weighted probability forecasting and how to do that really well. So I wanted to [00:17:00] give you guys a practical tool to be able to to do this and and be able to assess the success of your Revenue to come in the future.
So step one for this is to identify the stages of your sales cycle, right? Everyone has, qualifies it differently, and every IT company goes through it a little bit different, but you get that first meeting. That’s when your probability, if they are meeting with you, they are beyond a lead, and you, if they’re scheduling a meeting, I’ve correlated that, as you can see, to a 5 percent probability.
Qualification, you’ve deemed that they can use your services and you can provide good services to them. Then you assign a probability to that, and so on and so forth. So once [00:18:00] you have assigned out what your stages of your sales cycle are, and you may only have three stages, met them, send them a proposal, yes or no.
And that’s okay, but your probability weighting will be smaller, right? It may be first meeting, 5%, send them a contract, 30 to 50 percent, right, depending on what your close cycle is, and one loss is a hundred, if that makes sense. The next is you want to go through each year date, each year deals, and assign them the probability based on the sales cycle.
Where is it? So I did do a little example here where your total pipeline may be 50, 000. Well, that’s not the amount of sales you’re going to close. Based on the probability, so when you use this weighted probability [00:19:00] forecasting, in this example, your pipeline would only be 24, 000, not 50, so you can cut that right in half.
There. And this exercise, I do recommend using a tool. Tools that can be used are ConnectWise if you use the cell module. You can do it also in Autotask. You can do it in HubSpot or Salesforce. As well as in Excel if you don’t have a lot going on, but consistently tracking your sales cycle and how your customers move through it will help you determine how many first meetings do you need in order to get to a one contract.
Right? So if you say you want to grow by 25 percent and you’re a million dollars, how many meetings do you need to have to get to 250, [00:20:00] 000? And that’s how you back in to that revenue number because it’s all about revenue and you need to have that nailed down pretty tight. Make sense?
Steve: Any questions?
Brandi: Yeah, are there any questions so far?
Steve: No, no questions yet. I’m going to launch one more poll. We’re thinking about creating a community for MSPs all around um, finance, accounting, mergers and acquisitions, etc. Great. The, the poll is to gauge everyone’s interest and said, um, Great. And I do
Sonja: see, I do see in the chat that, um, Brian asked if, yes, we’re going to be sharing the recording.
Absolutely. Yeah. Yeah.
Brandi: Okay. Now we’ll talk a little bit about strategic cost management. So once you establish what your revenue is going to be, [00:21:00] or needs to be, or should be, and how you’re going to map that out, strategic cost management is super important. And I did not put on this slide this, but you never want to go through your costs.
and say, my revenue is going to go up by 10%, I’m going to add everything is going to go up, um, 5%. You want to really go through each of your line items. Some may be a percentage of revenue. You want to think about drivers. What drives costs to go up or down? Insurance, for example, different types of insurance are driven by workers comp, is driven by labor.
Thank you for listening. Business liability is driven by revenue, payroll taxes are driven by labor, um, travel expenses may be driven by revenue or opportunities, right? How many opportunities are in [00:22:00] your pipeline? So you want to go through and really look at line by line. And be thoughtful in your planning process.
It could be that you have auto expense because you have a lease and that’s a fixed fee, so really be thoughtful line by line, but step one here is to do department level P& Ls. So, looking at your departments or your cost centers or stakeholder ownership, right? So if you are looking at your operations team, you may look at your engineers separate from your help desk, for example.
If you break it out that way and analyze the profitability, could even be by, um, by service offering. Okay, so you may have a security, you may have managed services, and you may have projects. When you look at those P& Ls that way, [00:23:00] you can see what you, how you are profitable. And it may only be revenue and labor that you can drill into, but there are software tools and other things that go into that, and you want to try and predict that.
And then identify ways to improve profitability, right? So a lot of times we see MSPs really like tools. so much for joining us today, and I hope that you learned a little bit about the different tools and technology, which is fantastic. But sometimes you have tools and technology that people aren’t using and you want to assess that.
Can you cut it out? And when you look at it by these departments or cost centers, what happens is you’re able to see the costs that are going into each of them and identify how you can cut some of those. The next is look at your resource allocation. And really optimize that. So you, the very first is identify individual [00:24:00] organization utilization and realization, which we have tools for that that we’re happy to share.
Just reach out and Sonia will send them over to you, as well as what are the needs by client size and type. Right? So, understanding that if you gain a 5, 000 a month managed service client, what are you going to need to service that client by resource type and cost will help you plan for your growth. And we’re going to go into that topic in detail so I can explain a little bit how to do it.
But it is one of the best things you can do to understand when you should add people We did have one client, for example, I’ll give a little horror story, where we had a client who got a really big contract and they were so excited that they, it changed, it doubled their business overnight, which was huge, [00:25:00] but they didn’t know what they would need to staff it, so they overhired.
And, and that leads to chaos, it leads to cash drain, and ultimately put them in a financial hardship which we had to then back out of and, and help drive them up from. You don’t want to get into that situation. You want to know when you get a new client, what is it going to, how is it going to strain your staff, and what do you need to do to be able to support it.
Next is scalability, which we just talked about a little bit. And how can you grow without compromising quality and efficiency, right? Sometimes business owners will say, no, my team has capacity. We can add 50 percent more revenue without ever adding a body. Well, if you don’t really model it out, how do you know that?
It’s a gut. Guts are really good [00:26:00] until they’re not, right? Until you get in trouble. And we don’t want anyone in trouble. And then review your processes, right? And this I put in here because When you’re trying to figure out if you can grow, one of the things you need to do is do you have the right processes in place in order to scale?
So I did put EOS for those that aren’t familiar with it. It’s a great tool. It’s Entrepreneurial Operating System. It’s a management tool that will help you run your business essentially, but it’s a framework. So I just put that on there for information. And then Vendor Consolidation Opportunities. This is one of the most underutilized things in all businesses.
MSPs are, are Not exclusive to this. It’s manufacturing, it’s healthcare, it’s anything. But you want to identify who are your [00:27:00] preferable vendors, who gives you the best AP terms compared to AR which means you Who gives you the best terms of when you can pay them compared to when your customers are going to pay you?
You always want to try and negotiate terms where you are not paying your vendors until your customers pay you, unless you have enough cash flow to do that. You can improve cash flow by shifting that just a little bit. And you can model it to say, okay, if my AP terms, I get a contract for a project, I order the equipment, it comes in in 30 days, I complete the install 30 days later from that, but my AP bill is due in 30 days, and my customer is not going to pay me for an additional 30.
You are floating that cash. For [00:28:00] one month, because you have to pay your labor. So, really thinking about that. That’s a huge one. Huge. And you can see it. It’s amazing how it can help. But then the other thing there is to add discounts and get discounts because any discount you can get on hardware today goes right to your bottom line and right to your margin.
And that’s what we’re all trying to do is improve profitability. Any questions on this?
Steve: You know, I gotta say, I absolutely hated being the bank. So any way that I was able to get my client to like prepay for the hardware, like, You know, finance it, something, something, so that way it’s not coming out of my bank account for 60 plus days.
Yeah. Cost, cost management, cash flow management, all the different ways you can say it, you know, that’s [00:29:00] Huge. No matter what size your business, I would say I would even argue the smaller your MSP is, the more important it is for you to understand your cash flow and be able to manage it.
Brandi: Yeah, and a good model, Steve, and it’s not just a P& L, right?
It’s a P& L, it’s a balance sheet, as well as a cash flow forecast. Because understanding that how cash is going to be affected is key. If you don’t have cash, it’s really hard to run a business. Really hard. All right, I’m going to go into resource allocation. Now this looks like a busy slide, but I wanted to talk about this for MSPs because understanding how many people you need is key, right?
Whether you’re big or you’re small. So understanding your bands of clients, [00:30:00] and that’s in this first slide here, and how many hours does it take for you to service Click through rate is the number of clicks in an average month, a different band, gives you what the average rate is, this is your revenue, and gives you your average rate per hour, right, and tells you, based on the number of clients you have, what’s your monthly revenue to be.
With your existing clients, looking at your revenue in this way, and then identifying what the service need is, is huge, right? Because now you can qualify what type of business should I go after. So, in this instance, right, you would think, Oh, it’s only three hours a month to go after 600 or an average 750 a month MSP, but I want the big dogs.
I want 3, 000 a month. Well, look at the [00:31:00] difference of your effective rate per hour by those two. So really understanding the type of client you want to go after and some of the pitfalls that you run into is huge. So like this is actual data from a client. I didn’t make it up. It was what we, we provided, this band here, of the 13.
50 a month, actually resulted in the smallest rate per hour for this MSP, which, this was their target, because they got those really easily, and they thought that would be the best to go after. But in reality, it wasn’t, and if you look at here, the seven clients were at 3, 000 a month, but they only made 115 an hour, so understanding that and knowing how to [00:32:00] course correct helps you get to that rate per hour that you want to get to without compromising quality and effectiveness, right?
So that’s the step one. And it gives you your own benchmark. by category. Now you can set these groups up in ConnectWise, in Autotask, in Halo, to be able to look at your customers in a different way. And I recommend it, right? It’s just a filtering to be able to see. Once you know what those hours look like, you know how many monthly hours you need in order to service your clients, which is like, okay.
If this is hours per month that I need, we all have about 160 hours a month available. It tells you how many people you need right there.
Steve: Did everyone [00:33:00] else’s mind just go
Brandi: I get so dorky about this stuff because it’s not hard, but you don’t think about it. Right? When you’re running your business, you’re not thinking about these little details. You’re just going through running your business. So, now you know how many hours. Now, let’s say you have a team where you have all different tiered texts, as in this case, and this is the same data that ties back You have Tier 1 techs, Tier 2, Tier 3, Tier 4, a manager, a project manager, security, blah, blah, blah, blah, blah, right?
Well, how many, your Tier 1 techs probably don’t use a lot of your engineering or Tier 4 techs, but they are using your Tier 1 techs. Click through rate, [00:34:00] The RocketMSP Podcast, Comet Backup, NaviStack, MSPs, Channel Program, vCIO, Attached to our fixed fee, pick it, right? You analyze that data, plug it all in, each tier, and it spits out for you how many staff you need in order to successfully service your clients if this is your allocation.
So, based on this, we needed 2. 33 tier 1 techs. and 1. 99 tier two techs and a half tier three. Well, you’re not going to hire a half a tier three, but maybe in this model, you’re going to have two tier ones, two tier [00:35:00] twos, and one tier three or four that can go between the tiers instead of hiring all of those individual positions.
Click through rate, The RocketMSP Podcast, Comet Backup, NaviStack, MSP, MSPs, Channel Program, vCIO, So maybe you hire a project manager or a manager that has a security background to help facilitate that. So now you get your planning and now you know if this number, oh I went ahead, if this number here goes from 5 to 7, it automatically spits out where your gaps are in hiring.
So it’s a pretty cool tool to be able to know how to hire and when to hire.
Steve: So how [00:36:00] much do you sell this spreadsheet for?
Brandi: I wish it was just the spreadsheet, but it is really taking your contract information, creating the bands. Some clients only have four bands of clients where it may be up to a thousand.
A thousand and one to fifteen hundred or two thousand, but it’s understanding the bands and then really analyzing the time data on who works at what band of client. So I wish I could say we could help you with this. But it’s really about getting in there and geeking out over your data to figure out what it is that you need.
And really, when you are doing the hours spent by client type, you do want to factor in, here’s a key thing. You want to put that in coordination and connection with what you have told the customer you were going to [00:37:00] deliver them and that you’re in alignment with what you’ve promised them, right? So if you analyze the data and you find out that people aren’t working on security, for example, or aren’t working as a, as a, um, CTIO in the clients, You know that you have a problem and you need to step it up.
So it does multi, multifaceted tool there.
Steve: That’s fantastic. Now I’ve got two questions based on the resource allocation optimization. Um, question number one, um, we know we’ve got somebody here that’s a one man show and there’s nothing wrong with that. so much for joining us on this episode of The RocketMSP Podcast, I’m Andrew Crespo Roman, and this [00:38:00] is The RocketMSP Podcast, I’m NaviStack, and this is
Brandi: The RocketMSP Podcast.
Click through rate, The RocketMSP Podcast, Comet Backup, NaviStack, MSP, MSPs, Channel Program, vCIO,
Steve: Perfect. And then, um, what about for new MSPs? They don’t, they don’t have data yet, but they want to figure out where they’re going. How, are they able to like get a ballpark to start with? Are there, are there numbers that, that we know are, are good averages to start?
Brandi: Yeah, and it really, that would require looking at, so when you put out a proposal for a fixed fee contract for [00:39:00] example, you are estimating when you do that, how much time it’s going to take you and what you’re expecting to make. Right? So, what I would do if you’re brand spankin new, take this, add your tiers that you want to have.
I don’t recommend nine tiers, but you can have nine, right? If you, if it’s hard to, um, hard to break it down. But you, you put in what your tiers are, and you put in what your estimated averages are. That you’ve done to behind the scenes for your proposal and then what your average rates are going to be based on that and then your effective rate and then check back every month, every week to make sure that your assumptions are accurate.
If you do that, you’re going to find flaws with your pricing. We all have it. Everybody has it. So you will find that. And then you will start to build [00:40:00] your own benchmark of data. But it all starts at that sale. And it may look like where you’re going to come in here and say, Okay, here’s my average rates that I’m charging.
And I know what my target is, 1. 50 an hour. And you’ll back into your hours. Thank you. And that’s okay. That’s okay to do. If you know your target is 150 an hour realized rate, and you’re charging a customer, you know, a thousand dollars a month, it’ll back into the number of hours that you’re going to drive to.
And that’s, that’s perfectly acceptable to do. Okay. Anything else? This is my favorite. This is what I get super excited about because this actually helps. Businesses understand what they’re selling and what do they need to sell it. So, I swear I get a little dorky. It’s a [00:41:00] CFO in me.
Steve: Um, we’ve always been a break fix MSP model in 2025.
So, this chart is super helpful.
Brandi: Oh, great. I’m glad to hear. And it will help. Because you can take, if you’ve been a break fix, You can take that data that you’ve been working on and you can then analyze it, look at what you’ve charged your customers each month, add an upcharge for the fixed fee, and now you have a new contract, right?
You know how many hours have gone into it, you know what your effective rate is, and now you know what you need to charge. And then you always add a little buffer, 10%, 15%, so that, because once you’re fixed fee, they’re going to call you more. Know that, right? Unless you’ve set them up perfectly, which That’s [00:42:00] not realistic.
That’s
Steve: the only way I ever do it.
Brandi: Right. Yeah, everybody. That’s all we ever do is we’re perfect people.
Steve: Yeah.
Brandi: Living in a glass house.
All right, so growth and investment planning and this is where I really hope to to learn from in the room who, so I think Steve you’re gonna put up another poll here, um, on what it is that you want to hear and this is gonna be my ad hoc section because All of these are super important, right? When you are looking to grow, you need to know a couple of things.
And all of this is all around that. What’s it going to cost? And what do I need to do to do it? So, whether it be new service or product lines, and identify what that’s going to look like, which I would absolutely use that resource tool for, as well as the pipeline tool [00:43:00] to really assess that. Understand and evaluate the ROI on going into new markets.
Do you want to grow across the United States? Are you in one state? Do you want to add on other states? There’s costs that come to doing that, and you want to run what that looks like. I have a client who took their NOC and moved it to the Philippines. There was a cost to doing that that needed to be analyzed and assessed.
and made sure that we were able to make it make sense because what you’ll see when you expand in markets, for example, is your profitability will go down and then it will come back up over time and you want to have an expectation of cash draw and what that’s going to look like. Acquisition preparation.
This is a huge one. Guys, I can’t even stress this one enough. [00:44:00] Model, model, model. Because if you want to bring on a new customer, how are you going to integrate it, what’s it going to look like, what are the additional costs you’re going to have? If you want to sell, you need to know what is that going to look like and have your book set up really well or you lose value.
I want to say that again. Have your book set up really well or you lose value. When you
Steve: say really well, do you mean, like, for example, set up the chart of accounts to the service leadership index, or?
Brandi: Service leadership, but it’s really making sure that you have revenue in buckets that can be analyzed, it’s having cost of goods sold appropriately set up, meaning your direct labor is in your cost of goods sold, that’s a big one, and making sure that you [00:45:00] are tracking all your costs.
In accordance with accrual accounting. Okay? If you’re running your books to cash, you devalue yourself. Click through rate, The RocketMSP Podcast, Comet Backup, NaviStack, MSPs, Channel Program, vCIO, So it’s important to model that. And then R& D budgeting for emerging technologies, you absolutely want to plan that.
And once you have identified the innovations, you want to look at that and incorporate what value they could bring into this, into your financial model. And cool isn’t a financial [00:46:00] focus, guys. Cool is just cool. Does it save you time? Does it generate revenue? So what do we got on our, on our panel? What do people want to talk about?
Steve: Well, guys, right now we have a two way tie between acquisition and market expansion modeling. So I need. I need one more of you to vote. That’s what I need. We’ve got 11 of 16 of you voted. Um, we’ve only got time for one of these. If, if I don’t get another vote, I’ll just pick one, and I’ll pick the one you don’t want intentionally.
And anyone
Brandi: can give me a call or give Sonja a call or reach out and we’re happy to answer any questions. We won’t do the modeling for you or the acquisition prep for you for free. But we will answer your questions, no charge.
Steve: Yeah, interestingly enough, nobody is [00:47:00] interested in R& D, and that doesn’t surprise me, because R& D is really confusing for MSPs, like, you know, I know a guy who, he bought himself a Nintendo Switch, and he said this is an R& D purchase, because I’m seeing if I can do tech support on a Nintendo Switch for my customers.
Brandi: That’s funny. That’s a funny one. I don’t know that that value adds. Would hit the model. That falls into the cool category.
Steve: Yeah, I’m pretty sure you’re right there. So I’m gonna say, uh, I think, hmm, I think we
Brandi: should
Steve: Well, I was gonna say let’s do acquisition because somebody just said something about it in the chat.
Brandi: Okay. All right. We’ll do acquisition. Um, so when you’re working on an acquisition, and this is when you are purchasing another company, [00:48:00] There’s a whole bunch of factors you want to take into consideration that often gets overlooked and why it’s important to model. Okay, and I’m going to lay out the areas to think of.
One, when you’re analyzing the customer base, you want to look at the contract terms. So this is your operational and financial considerations. So, if the contract term is only one year, You want to look at how many customers are going to be expiring within the first six months of that acquisition, and that matters, right, because you’re likely to lose customers In an acquisition, I actually had one acquisition that I saw, I was on the sell side, not on the buy side, where when the acquisition happened, they lost all but two [00:49:00] of 50 customers.
Steve: Wow.
Brandi: Devastating, right? Devastating for the acquirer. So it’s really important, and that is a due diligence requirement. It is not a requirement of the seller to share, other than give you the data.
Sonja: Okay? But why? Everyone’s thinking, right? Why? Why?
Brandi: Why did so
Sonja: many attrition? Why?
Brandi: Um, they had disgruntled employees that stole them.
Oh, because we’ll talk about that too, um, but that step one is assessing the quality of the revenue. The other operational thing that, that most people underestimate is culture. You need to make sure that the company you are acquiring’s culture, you really know, and that involves talking to the [00:50:00] key employees that will be staying or that you’re purchasing the company that you will need, okay?
And making sure that there are synergy. When there are culture classes, clashes, it, you can’t integrate them if you’re going to integrate them. But culture is the number one killer for, for deals. So really assessing the team and understanding doing, running that model resourcing, mapping in your current team with the team that exists.
And the customers to make sure that you have the people that you’re going to need. Are you going to have to do a layoff? Are you acquiring because you need the skill set? Maybe they have a really robust security or cloud program and that’s why you’re buying them. So really [00:51:00] understanding the customers.
The revenue in the employees, and then mapping in a loss, a natural loss of customers, and a natural loss of employees. Not everybody is secure in being acquired. It’s scary. It’s fearful. People worry about their jobs. They think they’re going to be found out if they’ve been slackers. Even if they’re not, people live in fear and a lot of ways of change, right?
So when you run that, run different scenarios, you lose 50 percent of the revenue and you lose 50 percent of the employees. What does it look like? Can you still pay your debt service? What does that look like? Will you meet your covenants? What is your cash flow look like? Will you have enough money to pay for people?
Or will you make this acquisition [00:52:00] and be preparing for a layoff? Nobody wants to do that. So, mapping all that out to be able to see and do the, I call it, what if scenario planning, is key. And having those really candid conversations. A lot of times what I’ve seen on acquisition is an over focus on technology use or tools.
I’m going to tell you guys the secret. If you use ConnectWise and they use Halo, really easy to get into one system. Don’t overthink it. Focus on the financial implications and the culture to make sure there can be some synergy there. And, look at the deal as a whole. When you’re acquiring, there are different ways to frame purchases.
It’s not all, I’m going to give you cash, and then I’ll have a hold back should customers leave me. for listening. Right, doing that what if scenario planning tells you what that [00:53:00] holdback should be. But, if you are looking to keep the sole proprietor or key people engaged post acquisition, maybe you offer some equity instead of cash.
You maintain majority. But they get some of the equity to stay on board. There can be a value add creation that is combined that that owner may, may want. And we see that more and more now. That’s one of the biggest trends that we’re seeing. So really doing that modeling and and planning for the worst case, for the best case.
It’s exciting when you’re buying a company and people get caught up in the best case scenario, but you need to plan for the worst case.
Steve: Yeah, now, we’re going to have probably a plethora [00:54:00] of questions all around mergers and acquisitions now that we started talking about expansion. Um, I do want to let you guys know that in January and February, we have five questions.
We have four sessions coming up all around M& A. So if we’re not able to answer your questions today, we will be able to answer them. You just got to come to future sessions. That said, um, One person asked how you calculate multiples and I’m sure they’re talking about like the the EBITDA multiplier Yeah, and I feel like that that’s a science in itself and you know some of these larger companies like, you know, there’s there’s a Meritech and there there’s one I think it’s got green in the name and then the 20 MSP like all these all these different companies They’re they’re like MSP roll up firms, right?
Yeah [00:55:00] And they, um, some of them will offer you a premium multiplier just because they’ve got, I don’t know, some extra money laying around and they want to make sure they close the deal. So sometimes the multiple is not, sometimes it’s not just science and math. Sometimes it’s they have a gut feeling and they’re willing to offer you more.
Brandi: Yeah, so the biggest keys there, Steve, there are two, right? How profitable are you or how well run is your business? Meaning, are you throwing 20 25 percent of your revenue on the bottom line? Right? That’s one big key. If you’re doing that, you’re going to get a higher multiple. As well as how different or unique or niched is your service offering, right?
Because a lot of these companies will go and say, you know what, we need a really good cloud [00:56:00] service provider. And that’s what they do that is kicking off 25 points on the bottom line. And it may not be at that million dollar threshold, it may be 500, 000 on the bottom line, but the multiple payout will be that of a million dollars or more, because you’ve figured out the sweet sauce.
Click through rate, The RocketMSP Podcast, Comet Backup, NaviStack, MSP, MSPs, Channel Program, vCIO, But it’s really, what are you offering the seller, and how well have you figured out your own business that improves it? [00:57:00]
Steve: Yeah, and then, you know, a lot of times, what, what these, and you kind of touched on this, these MSP roll ups have figured out, alright, so, I’ll, I’ll offer him, let’s say the business is worth, A million dollars.
And we’re not going to, we’re not going to talk about the profitability and the EBITDA and the multiplier. Let’s just say it’s worth a million. So I’m going to give him 500, 000 and then I’ll give him a. 10 percent stake in the, in the rollup or something. Right. And, and what that’ll do is as one that makes it so they don’t have to shell out as much cash.
Um, and then two, oftentimes what they’re doing there is, is they want you to come on board, right? And they’re not going to give you all of that, all of those shares up front. They’re going to say, you know, we’ll, we’ll give you, you know, 25 percent of the shares now will give you another 25 percent after a year [00:58:00] and then the the rest of them will vest after 24 or 36 months or something like that, right?
Brandi: Got it.
Steve: So yeah, that’s that’s their way of making sure that The leadership team at an MSP stays on board so that way they can have a smooth transition because they know how long it takes for them to fully integrate the newly acquired MSP into their current culture and ecosystem.
Brandi: You just nailed it.
That’s exactly why they do it. Or The only other org, they saw a lot of synergies and culture, and they think the company can be even stronger. So we have one client where the two of them, the leadership teams, came together beautifully, and the company is poised now to be combined that much stronger, which is going to make everyone more money, right?[00:59:00]
As well as providing good service. But it’s all about an acquisition. Usually isn’t always about the service. Right,
Steve: right. Yeah, absolutely. There are, and you’ve kind of hinted at like, there are so many different reasons MSPs will acquire someone else. It could be because someone wants to retire, they want to get out of the game.
Uh, you know, it could be that. That, um, someone built their company specifically to be sold. You got it. And, you know, other people build their company specifically to acquire. Uh, and then, and then there’s other people who just build their company and they don’t think about selling or acquiring, they just They just build a company and say, let’s, let’s make this thing as big as we can make it.
And that’s okay too. Like there’s, I don’t feel like there’s a wrong answer as long as you’re profitable.
Brandi: That’s right. That’s [01:00:00] right. Unless it’s a hobby. And I know we’re, we’re running out of time here. So I did want to be cognizant, but, um, performance metrics and adjusting. All the things we talked about, you just want to measure and adjust.
And that’s what we want to make sure people are doing. And this will be in the slide deck, but you really want to be focusing. on watching the data trends and course correcting where needed. That’s the biggest key. Okay. Biggest key.
Steve: Wonderful.
Brandi: And I think that’s, that’s what I got.
Steve: Well, great. Well, hey, thank you so much, Brandi and Sonia, for, for coming on here and doing this.
I don’t know about you guys, but I have learned a lot. My brain has exploded at least three times, and I’m, I’m kicking myself that I didn’t do this stuff when I was running my MSP. Um, you know, the, the whole hindsight is 20 20 thing, right? [01:01:00] But, the cool thing is, now you guys have been empowered with some of this knowledge, and, um, you are gonna, you are gonna sit there and you’re gonna go, you know, maybe I should talk to my accountant about doing some of this stuff.
That’s, that’s kind of what they’re there for. But unless you ask them for it, a lot of accountants, they’re already busy. So they’re, they’re not out there, uh, you know, scavenging, you know, they’re, they’re gonna, they’re gonna help the company, the, the customers that, that want help, right? So talk to your accountant.
If you don’t have one, reach out to Next Level Now. That’s, That’s my call to action. We don’t normally do that, but Brandy did such a damn good job that I want to throw that out there that this is what she does for a living, and you guys should definitely reach out if you don’t have someone already. I
Brandi: appreciate that.
Steve: Absolutely. I can’t wait to to do this again with you next year. [01:02:00] This has been great. Thank you so much, and thank you everyone else for attending. Take care, everybody.
