EP158 - Ask Stuart #8 - How Do I Get More Cash in My Pocket with Stuart Warwick & Ian Luckett

INTRO

In this episode of the IT Experts Podcast, we asked Stuart how do I get more cash in my pocket.

Welcome to the IT Experts Podcast, the only podcast to help MSPs scale to 1,000,000 and if already there get to 5 and go fast. At the end of the day, isn't it all about building a business that works for you rather than you for it? I hope you enjoy the show.

IAN

So, good morning, good afternoon, good evening. Welcome to the IT Experts podcast. You're going to love this one. We've got Stuart back in the chair again. Good afternoon, Stuart. How you doing?

STUART

Hello, everybody. Really well, thank you.

IAN

Great stuff! And in this episode of the Ask Stuart Series, we ask a real simple question: how do I get more cash in my pocket in my MSP? So, great question. When we get asked an awful lot about profitability, you know there's running an MSP. We know how wonderful the model is, there’s running an MSP and then there's running a profitable MSP and then there's running an MSP, there's profitable. And then worthwhile is somebody would want to come and buy it. So efficient as well. There's always different nuances that we got going through here. But you know, it's a really interesting one. This, isn't it? Because, everybody thinks, a lot of people, a lot of MSPs think that just cause I've got a lot of cash in the bank, we're running a really efficient profitable business, but that's not necessarily the case, is it?

STUART

No, it's definitely not. And you know, who doesn't want more cash in their pocket at the end of the year? It's so, so, so often that we're working with MSPs and over the years and they go, it's fantastic. You know the business is OK. I do get my, you know, annual accounts from the accountant. It says, yay, you've made X profit this year. But where is it? At the bottom line of my accounts, it says I made £154,000. Have I got £154,000 in a bank account somewhere? No, I haven't. I'm still paying myself a relatively small but OK wage. Everyone else gets paid and I made 150K last year. Where is it? And that's because you're paying everybody else first. You're last in the line to get paid. I don't mean your salary or your dividends, but you are the last person to be considered, and you're putting yourself last. You need to put yourself first. That's the key thing. So therefore, you're thinking, well, if I'm profitable, where's all the profit going? Maybe I'm not as profitable as I think I am. And as you said, Ian is, you know, many MSPs run their business literally on the basis of have I got any cash in the bank? They don't look at their accounts except when they chuck it all at the accountant at the end of the year. And he or she does the books. So, the thing is, you don't know your numbers and many don't know their numbers. And no, they don't know their numbers. And no, they never know their numbers because they're scared of the numbers because they're too busy doing it. But if you are ambitious, and so this won't apply to everyone. If you are ambitious to grow your business, so it's a business asset to you, you have to know your numbers. Because ultimately, if you want to be, as we say, owner not needed, to owning a business but not needed in it. You're going to run your business off the numbers, the KPIs and the finance numbers. And so therefore, whether you like it or not, you are going to have to get your head around the numbers.

IAN

And we're not just talking about ‘money in, money out’, what's left of it? We're talking about going through our headline numbers, exercise, and process that we run which, I think, is possibly one of the most powerful things that every MSP all of a sudden has ‘Ohh my word, until I've done this exercise, I didn't realise that all my small clients weren't profitable. All this client who I absolutely love, who's paying me thousands of pounds a month, I'm actually not making any money on it, you know? So understanding and knowing your numbers is not just about what zero says, is it? It goes much, much deeper now even into account management, doesn't it?

STUART

Yes, it flows across the whole business and the behaviors flow across the business in terms of are we profitable and are we efficient and you know, that flows, you know, from bottom of the organization up to the top. So, because the fear that every MSP has is, will I fail? Will I run out of cash and go bus? So, I look in the bank account I go, oh, I've got cash. I'm OK. But, actually, are you? Are you actually OK? Because it only takes, you know, one thing to come along. And so, in this scaling journey, we talk about scaling from drive to thrive to arrive. There's quite a lot of fragility on this MSP journey. It takes one member of staff or one or two clients to, you know, to leave you due to eminent [reasons], nothing to do with your own fault, M&A work, they get bought out. They sell a business. And suddenly, your biggest client has gone. That cash in the bank can erode very quickly if you're not profitable. And so, getting your head around whether your profit margins, your growth, your gross profit, and your net profit at a business level, departmental level, and a client level is absolutely crucial because the other thing about profit, and we've talked about this on other podcasts, is if you're not making profit and there isn't cash in the bank that you can invest confidently, I let go of and put it into something else. Then you kind of stay where you are, you know, because all the money is just literally keeping the wheels going, which is you. You and your small team. And so you're stuck in this vicious circle of, well, I haven't quite got enough cash, but the cash is OK, but I'm scared to spend it, so I'm not going to hire anyone else to do something, something I could let go of so that I can do something that will get me more clients. And we come across clients that have been stuck in that OK space for 10-12 years sometimes. And then look back and go, ohh, I wish I'd done this 5 years ago.

IAN

We just actually just talked about that on another podcast that we recorded a little while ago just about recruiting at the A-players which are going to be your key people who are going to help you drive your business forward. How do you know if you can recruit them now? OK, if you're going to pay £35,000 for someone for example, it's not going to cost you £35,000. It's going to cost you about 3 or 4 grand a month. So, all of a sudden you change your whole mindset, but if you don't know your numbers and you don't know what that looks like on a rolling cash flow forecast and your rolling profitability, then how are you going to be able to make a decision on whether you can hire and then you can then go and start working on more of a strategic role? Sales market in lead generation, you know, whatever that might be. So, real interesting. But real key topic this one. Brilliant. Thanks for putting some context around that, Sturt. So, what are the four things that we're going to be helping the listeners out with today in terms of how to get more cash in their pockets?

STUART

Well, the first one and the really easy win is to look at your costs. And this goes for your own personal finances. You know, in in the world of subscription marketing, we have all got, you know, Spotify, we've got, you know, different apps, health apps, finance apps, all kinds of things that we're paying fix, six or seven pounds or in your MSP business, sometimes, hundreds of pounds a month. All which we've forgotten about, or it was a nice idea at the time, but we haven't actually used it, or we've moved on. So just going through literally your line-item costs of your P&L. And in fact, a client did this two weeks ago and they found £2300 of individual recurring items, £100 here, £75 here. That's taken up £30 grand a year.

IAN

A year? It's an engineer.

STUART

Yeah, it's an engineer.

IAN

And you tell us that you're busy.

STUART

They literally found an engineer in costs that they were incurring every month that they didn't need. I think everybody should do that every quarter as a good habit. What have we got that we don't need that we could turn off because we're not actually using it?

IAN

Absolutely. One of the one of the quickest wins, but sometimes it's one of these things that you just don't look at because you're busy being busy. You're tied up doing everything and then all of a sudden, you're running out of cash and when you look at it and when the chips are down, you can really start to..

STUART

And that's particularly an issue when your accounting isn't set up properly. So, if your chart of accounts isn't set out and sufficiently well enough, you can't actually look at line-items, because everything's lumped together under, you know, technology. Or it's lumped under hardware or software. And that's just one lump figure and you can't break it out. And you need to be able to break it out so that you can make those decisions of, oh, we're not using that. So, we don't need that anymore. Let's turn it off.

IAN

Brilliant stuff. Look at your numbers. Know your numbers, know your costs. You know we've talked about it before. There's many podcasts on this channel that have talked about going through your costs. What's #2?

STUART

Well, it's related, but it is know your numbers and by this we mean the actual numbers that make up your finances.

IAN

Brilliant. So, what's #2, Stuart?

STUART

#2 is related to this whole cost factor thing, but it's about knowing your numbers. But knowing your numbers in relation to what's making up those numbers, so knowing your contract revenue, your support revenue, your hardware revenue, the gross profit that comes off that and again we talked about it a moment ago, setting up your chart of accounts right. This is crucial, but the other piece that then allows you to do is to forecast. So, if you're ambitious and you're looking to scale, you need to be and we call it in terms of recruitment, hiring ahead of the curve. Can I afford to hire ahead of the curve or invest ahead of the curve and start thinking about bringing on things before I actually need them? So, we're marketing and building a marketing engine. The activities that you're going to put into your marketing aren't necessarily going to give you a payback tomorrow. They might not for six months while you're setting stuff up and working with the marketing agency or marketing person or bring them into your own business and inducting them and training them is that therefore, can I afford that resource? You know, for at least six months before it starts making a difference and delivering a return, and by having a P&L forecast, you can actually model it and go, you know what? Yes, absolutely. It doesn't affect my operating profit from one month to the next. Obviously it reduces it, but it does mean I can afford it and that helps you anticipate what you're going to do and what you're not going to do going forward. Sounds complicated. And many people say, why do I want to play guesswork with the future? But you're not. You're modelling the future. You know you're planning for the future so that you give yourself the confidence to be able to make those investments decisions, knowing that they're affordable and that you're not going to go bust or you're not going to be able to pay your call bills, or you're going to have to let that person go, or that software go before it's actually started working for you.

IAN

So, for those unfortunate listeners who are not members of the Growth Hub, talk about knowing your numbers right and obviously we use our headline numbers system, we've got here, we've got cash flow forecast. What does this actually mean to the list, right? Cash flow forecast, you know, if you're going to run that on cash, whether you want to run that on a weekly or a monthly basis. I suggest running it on like 16/12/16-week rolling basis. P&L forecast, so you know what's coming up. You know what you're expecting in terms of sales and it can be a bit scary sometimes cause there's, as Stuart says, you can put a bit of guesswork in and then you will go, ohh, but what if I don't meet it, just treat it as a test and then you can't fail it when you start off to give you a bit of confidence. Anything else in terms of the whole what does knowing your numbers actually mean? There's a whole other podcast there, by the way, tt's P&L cash flow.

STUART

And am I being paid? You know, are my clients paying me, because you just talked about cash flow, so suppliers, you know, people I have to pay, what does that look like on a rolling basis? You just talked about the P&L forecast and making investment decisions. The other thing is, is the cash coming in and is it accurate? And so, does that marry up to the, you know, the to the PSA? And the billing and that's a whole another sort of podcast as well. But, at that level though, at least if you've got that that data coming and you look at those reports, you can go, hmm, that feels right. You know, it's your business at a gut level, it's like, do you know what I that's what it feels about, right? Or do you know what, there's something missing. I can't put my finger on it. I need to dig down because if we don't dig down, then you're leaving just like that. 2300 of costs that were just being sunk lost.

IAN

Mounting up.

STUART

You're suddenly working harder than you need to. And there's some real quick wins. Lying right under your nose.

IAN

And we see it so many times, don't we? With people getting the rug pulled from under their feet and, you know, with either through sloppy accounting or not account managing properly and things like that and having this tied up, this is probably, you know, one of the most, you know, one of the most important things to get your head around in your MSP. Anyway, so, OK, #3.

STUART

Now this one is very, very, very powerful and we've talked about it before, but analyse your clients. You know, we talked about, are your clients paying you? But, what are they actually buying from you? Is that clear? And is it as much as they ought to be buying from you and it's account management, analyse your clients, what are they spending with you? How profitable are they at a gross profit point of view? Are they net profitable after you've done all the work with them? And also, how noisy are they? What does this? How does this client show up in your world and therefore are you charging them enough? Have they got the right stack and the right technology to map against the type of business that they've got? Are they expanding? Are they declining? Are they emerge mode? Are they in a compliance industry or are they fully, you know, are you fully supporting all their compliance elements? That there's a whole bunch of questions that have profit, you know, lying behind them that are quick wins in every MSP. In fact, tens of thousands of pounds of profit opportunity sit in your clients. And if you don't have time to look at your clients and analyse them and then decide you know what, there's a whole load of stuff that they should be buying or I should be talking to them about that they're not, or their billing is wrong and inaccurate and I'm leaving cash on the table every month through my own lack of due diligence. This is a massive opportunity. Understanding the numbers behind your clients and what they're buying from you and what they should be buying from you.

IAN

Because probably in there as well, there's a whole bunch of time thieves as well. Isn't it?

STUART

Hmm. Yeah, totally.

IAN

Last but not the least. Number 4 is..

STUART

Related to what we just talked about was having a systemized account management process in place. So, if you've analysed your client numbers and you understand what they're spending. And this is where you lay over the top of this, the product matrix, your product matrix of what makes up your technology solutions, your technology stack. It's that classic matrix by client and is it a yes or no? Have they got it or have they not got it and do they need it depending on their, you know digital road map or technology road map that you should understand what that looks like for each client. And again, if you don't have that systemized account management process that underpins the technology road map of each client, then you can't have this forecast. Here's that word again. In being able to forecast what your clients need, because if you can forecast what your clients need, and you're going to go and have those conversations with them and because you know each client probably buys from you on a quarterly basis or is willing to listen to you on a quarterly basis. And also you'll know how their budget process works. Do they have CapEx? Pots or not, or whether it's? All in one fund. You know how to approach them, but actually you can come back to your P&L forecast, you can overlay that knowledge to go, well, I know that clients got another 30 grand to be spending with us this year because they need to upgrade XYZ. Suddenly, you've got greater confidence and clarity of your business and of their business. That can only be a win-win. Because they're going to be more efficient, more productive, more secure, and you're going to have greater confidence in the revenue and services that you're going to provide for them and you become, as we've talked about in other podcasts, you build a moat around your clients in terms of defending them and protecting them from somebody else's coming in shining a shiny light, you know a shiny thing in front of your clients. And that suddenly they ring you up one day and say, hey, we're going to another MSP because they sound sexier than you or we've outgrown you.

IAN

The account management is, you know, it is just that low hanging fruit, isn't it? It's people who already know, like, and trust you. You don't have to go for the whole sales process. And building the pool and all of that sort of stuff. So, all your existing clients are there for you to lose really. And if you don't manage that properly through your account management process, but also understanding what that means in the business in terms of, you know, their profitability, as we said, is absolutely key.

STUART

And this is profit management coming back to what this podcast is about. This is about profit management because we all know the old adage that it's harder to get a new client than it is to, you know, look after an existing client. So, if you're missing a trick on having the time or the kind of confidence and process to analyze your clients, look after your clients, speak to your clients regularly, map out what they're needing, then you are literally leaving hundreds of thousands of pounds over the next three or four years on the table that should be with you now rather than then.

IAN

And we've seen, haven’t we?

STUART

That's the difference between finishing the year with your accountant, him saying, well, you know, all her saying, you've got 15 K profit made this year. And you're going where is it? And actually knowing that it's in an account.

IAN

And money can show up in many different ways of efficiency or systems or whatever it might be. And you know, if you think you're leaving money on the table, you probably are leaving money on the table. And, you know, if you guys want to know how ready you are to scale, then I want to invite you to come and take the MSP Mastery Quiz. The link is in the show notes here. And in just three minutes, you'll get a 360° scan of your MSP and it'll help you identify one or two tactics, could be three, that will help you find more time, engage and align your people, and just generate more leads. So, I urge you all to go and take that quiz and see how your business scores, you get a report, a personalized report. It's absolutely brilliant. Go and do that now. So, let's wrap this up for a bit of a close, Stuart, any final thoughts?

STUART

My final thoughts, Ian, are profit is everything, taking the time to understand your numbers and understand your clients as deeply as you possibly can. You know if you're making enough profit or not and take a deeper look at your numbers and if you're not sure, get some help. Talk to us. Talk to your accountant. Sometimes the accountant isn't the best person. But get some help to get under the skinnier numbers.

IAN

Fantastic! Thanks very much for your time today, Stuart. Just a quick one. Just before we shoot off, if you do have a question in your head that you want us to ask and want me to ask Stuart then just click on there's a link in the show notes as well. Submit your question. We'll do a podcast on it. Why not? That's what it's all about, helping people around. So, thanks again, Stuart. I'll catch up with you on the next one.

OUTRO

So, I hope you enjoyed the show. If you did, I'd love it if you could leave a rating and review on your favorite podcast platform. If you want to learn more about how to take your MSP to a million, or if you're already there, go faster, then come and join Stuart Warwick and myself in the Scale with Confidence Facebook group, the link is in the show notes. You can enjoy the rest of your day and I look forward to connecting with you soon.