EP189 - The Dangers of Being a Profit Passenger in Your MSP – Client Success Stories with Gary Rayner & Ian Luckett

INTRO

In this episode of the IT Experts Podcast, we help you to stop being a passenger to your cash flow.

Welcome to the IT Experts Podcast, the only podcast to help MSP scale to 1,000,000, and if already there get to five and go faster 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. So they've got a really exciting guest for you today. We've got one of our clients, Gary Rayner, and we're going to be sharing with you how to really get to understand your numbers in your finance, and you're going to learn some great tips and tricks that Garry's used to bring out to stop him becoming a passenger to his cash flow. Before we get cracking, Gary explain to us all who are you, what do you do, who do you help? What's the size of your MSP? Where are you, the amount of people you've got and all of that kind of great stuff.

GARY

Hi and thanks for having me on. So we're MSP. We're based in East Anglia, Suffolk to be precise. We are just heading for our seven-figure turnover after 18 years of being a business and we're a team of eight.

IAN

Oh, well, fantastic, fantastic. So why are we talking to Gary today. Right, the reason that we're talking to Gary was he made quite a big investment at the back end last year and the results that he's now got out of this investment, which was bringing in a CFO, Director of Finance, have been massive and you know in the growth hub, as with every ambitious MSP who wants to grow the knowing your numbers is absolutely critical. And when we talk about knowing your numbers, we don't, we're not just talking about knowing how much is in the bank to understanding the profitability of your customers, understanding your cash flow, understanding where you can invest and forecasting and all of this great stuff, which can be extremely, extremely boring and tedious. And because of the high profitability of most MSPs, this is something that can be completely overlooked. But I wanted to get Gary on to that cause I want him to explain the story of what he's been through, cause I think you'll find it truly inspiring. Gary, before you identified the change that we're going to talk about and what you needed to do, what was your relationship with the money side and the commercial side of the business sort of like oh, like over a year ago now.

GARY

So prior to bringing on our CFO, who point of clarification was an interim CFO. So it was only here for three or four months to put good things in place. We were working with a in House bookkeeper finance person. They managed our day-to-day invoicing and book that have grown from many years prior to from me doing it myself to just having someone ad hoc doing it, to then bring it as a completely in-house process.

IAN

Brilliant stuff. And what was the finance? Something that interested you or were you just happy with taking money out at the end of the month and going on holiday with the family?

GARY

I actually, I love the finance because at the end of the day, that's why we're here, it's what we do, that's why we do what we do. It's my favorite part of the job. I'm sending those invoices out every month. That's the bit, that's the kick. I guess that's that's one of the reasons why we do what we do. It's really run our own businesses and spend all this time, late nights and stress because we want to earn the money.

IAN

Exactly that. That's what it's all about. So what was the you know, when there's any change in any business, you know, whether it be deciding to grow the business, whether it be deciding to, you know, go on a different route or employ new people. There's always a point of change and there was a point here wasn't there for you where you went hang on a minute. What got us here is not going to get us there. We need to make sure we really get to understand the deep and meaningful numbers of the business because when you came into the growth hub, we go through an exercise called the numbers. How insightful was that into you, into what you knew beforehand to kind of like what we helped you to discover as it was?

GARY

Having a process to follow was something that was really beneficial. Having that guidance from a defined way of doing something that allows you to compare your self to your peers is something that I find very interesting and it's a great way to establish whether or not what you're doing is correct. What they're doing is correct. It's like it's a lovely way to really put a rubber stamp on someone's business and what they do.

IAN

And when you completed that exercise to start with, was there anything that made you kind of sit up and think, hang on a minute, that doesn't look right. This doesn't look right. You know, kind of gave you a little bit more detail, didn't it?

GARY

Yeah, so I mean, historically, our P&L which is what I've lived off for a very good a few decades now it has been very detailed. It has a lot of information inside it, but it which allowed us to actually kind of embrace headline figures, but being able to then break those down into their subgroups with their be more detailed or be less detailed about what we're recording allowed us to see the profitability departments between cost centers and then actually highlighted some areas where we either were miss billing or not billing, not billing, the scary one.

IAN

That's right. And this is about you focusing your time on what we call the 1000 LB task. So you know which areas, you know 10 LB task very low activity 100 LB tasks is what we're looking to delegate, but for strategically for growth visionary and you know and the business side of things we're looking for Gary to spend his time looking at where are we not selling a particular service, where is the client not profitable and it's those hundred those 1000 LB strategy tasks.

GARY

It’s a good point. So just because you said 1000 LB task 1000 LB task now, today, 18 years in doing. What I'm doing is not running my bookkeeping. My invoicing and doing my receipts through decks that's not 1000 LB task, but 15 years ago that was 1000 LB task cause if I didn't do it, didn't get built and it's managing that change as you grow and as you pick up more people and understanding that what was once 8000 LB task is now not a 1000 LB club.

IAN

That's a really great point, actually. And that just goes to show as the businesses grow up and mature, you know the real key things are you know, do you know your numbers in your business, can you build an amazing great team? Do you have a set of leads and you know what you've done there over the years is you've been able to build a great team around you and one of those team had the audacity to retire last year, didn't they?

GARY

Yeah, she did. She was a bit noticed as well. It was over about six weeks. It was lovely and our bookkeeper decided that in of July, August last year, she was going to leave at the back end of September. And it was a shock. It was Hard. It's really hard, to recruit people at the moment as well in any role, be that tech role or be that an admin role. It's incredibly hard to find people to do the job. It was incredibly quality to find people to do the job as well, depending how you're trying to recruit them. So actually what we, what ended up happening was is I ended up falling back into that 100 LB, 10 LB task again, no bad thing, to be honest for any short period of time that there's no real bad thing in going back into the weeds for a very short defined period of time. Because you get to see things in a new light, you've learned things you know, know things you didn't know, and therefore you can make better decisions or than you would have done in the past. And actually what it highlighted was is although we thought things were good, although the numbers good. We're making consistent profit each month and we're recording things correctly. We will miss billing and we, weren't getting things quite right, and that's what kind of led us in our inability to try and recruit somebody to replace our in house bookkeeper actually led us down the path of trying to find this CFO and the opportunity came around and now don't get me wrong, not everyone's going to find someone on LinkedIn one day that says, oh, by the way, I'm a Chief Financial officer for a multi £1,000,000 business. And by the way, I'm looking for a job. And also you happen to know them and can verify they actually are a good person and then invite them for a coffee. That's not going to happen every day, but there are definitely services out there that will provide you something similar to this intensive crash course that we went through for three months, they'll do over the course of a year or two and we are able to bring this person on board to put right some of the core things that the business, not the day-to-day things and his remit was most definitely don't get stuck in the manusha off of day-to-day activities of making sure billing corrections are right. Let's focus at the core one of the big things they did do over my new show and I know some of our listeners will actually appreciate this... was he sorted out casaya billing and he actually got that sorted because he was able to talk to the right people, had to say hi, laugh in the right language and actually just get it sorted. That was well worth it.

IAN

What's really interesting here, Gary, is, is that you know, the bookkeeper wasn't doing anything wrong. Everything was in a great place when you recruited that bookkeeper, your mindset was probably in a different spot to where you are at now, you know, looking at these, the 1000 LB tasks. As we thought, and because you went back them back down, you know, project mode, whatever you want to call it, someone's left. We just need to keep the boat afloat for a couple of months while we decide what we want to do. You probably looked at things in a slightly different way in terms of what was going on with the finances is that, would that be a fair assumption?

GARY

100% yes, I've had probably three or four years worth more experience working in a more management role than it was in a day-to-day role. So yeah, I'd also read out a good number of books. Since then we've put some more processes in place and that actually allowed me to understand more.

IAN

And this is a classic example of, if we keep doing this every day, this is not going to help us get where we need to be. You know what, not what got us here is not going to get us there. Why didn't you just go and hire another bookkeeper?

GARY

To be honest, I think. If the right person had have come along, we would have, and we did hire a new bookkeeper as part of the process of our CFO being here for three or four months. We have a bookkeeper come in, but actually that really did is highlight that what we used to do with our bookkeeper is and what we can do with our bookkeeper in the future. And actually the person that we get in the future needs to be a different person to the one we had in the lost. Because we've grown up and managing a business that is two-three-four hundred LBS is very different to managing a business. That's 789 a million and upwards, they’re different entities. They've got a different level of transaction counts. So you know there's a different way of doing reconciling and you're journaling all just changes because you've grown bigger.

IAN

That's interesting. So you're looking for someone who's a bit more mature, is what, given a bit more thinking, what was the difference between the lady who retired and potential person moving in? What was that gap?

GARY

Look, like, so realistically, they were probably equally as qualified as another one was starting out her career and one was finishing her career. But what we actually now need is someone that has a bit of knowledge alternatively the where I think we're now heading again and it's 2024 now. So this may change is a lot of the day-to-day things we were doing, we could either automate or highly process. And they can be done by somebody who is very unskilled at account and finance, so if we can get those day-to-day jobs being automated and processed and defined, whereas they haven't ever been defined, and this is, this is what good looks like, then actually we might only need somebody for a very short period of time. But as a CFO role, but just maybe as a finance executive, someone just you know that could just add that little bit of extra knowledge and can augment our counter, there's an outsourced accountant, and we've had the same accountant for 18 years.

IAN

Brilliant. So you know you've basically taken a bit of automation. You looked at the way that you've your stacks connected, your account systems connected and got a common, okay, what does not need to be done by the human effectively and the nicest possible sense of the term, right, automate that and then kind of what's left and how do we make this high performing. So you made the decision to go and look for CFO, an interim finance director. You know that you needed someone there to kind of push you a little bit further. How did that thought process come about? Did you just see something on LinkedIn or did you think I need someone who's got a greater skill level than me or why did you come to that decision?

GARY

There's a saying one of a few that I've tried to stick by, which is surround yourself with people who are smarter than yourself and I most certainly realised that I needed someone way smarter than I was –

IAN

Lovely, yeah.

GARY

At doing this job now don't get me wrong, I'm not saying that I'm useless at accounts. I like to think I'm actually better than most at what I do at doing it and managing it, and which is why we're we've been going still for 20 years and making a profit every year, year on year. However, there's this there's a great benefit in, I don't know what I don't know. One of the reasons I started working with you guys. I didn't know what they didn't know. And you know what could somebody who has had years of experience dealing with not an IT company, but dealing with finance. Add value to me and you know it was not a cheap process. It was an absolute baptism of fire and it really hurt the bottom line for three or four months, you know? And we're going to, you know, in terms of the reporting process, we're going to pay for that for another nine months, but the thing is we know that that was a tough period. Now we and it's having that faith and that confidence in the numbers and what you do.

IAN

Did you deliberately pick someone who wasn't in the IT space you did, why did you do that?

GARY

Yes. Because you don't, if you want a second opinion, you want an unbiased opinion and you don't want somebody bringing in bad habits from somewhere else, and you know they potentially if they've come from another IT article for other IT place they could bring bad habits books and really narrow should pull the candidates as well so you know it's a much bigger pool. And as I say don't say don't get well we were lucky we found someone that I knew that had a really good background and that I knew I could trust in that role which wouldn't happen everyday. But if someone was looking to repeat the process, there are people out there whose jobs are to do this and they'll do it in a much slower way, but over a longer period of time and get you going in the connect.

IAN

Brilliant. So what happened then? You've already said it's this was going to kick the bottom line for 3-6-9 months and we've got someone in who's more experienced than you in the finance side of things. Cause we want to go faster. We want to go, you know, and understand more about the business. What was the process that you worked with this guy on?

GARY

Some of it there's loads of tools out. There for an IT professional these days. And you will be calling shiny balls. Yeah, we see them. We're all fantastic. That things going to change my life. That thing is so, I'm going to get that one in place and this is going to solve all my problems. I'm just going to carry on. I could forget about that job, but actually find that you're spending more time figuring out that tool, learning that tool and getting it right. The best tool at our disposal when you're dealing with numbers is Excel. You know who knew Excel was the tool that you needed to calculate numbers and compare things. And yes, you can get lost in an Excel spreadsheet, but you know, because we're a PAX 8 partner, PAX 8 have great integrations with our PSA auto task and auto task as an automatic synchronization, albeit through the third party to 0, which is where we do all of our accounting. But that doesn't mean that the data that you have inside packs 8 is actually the data you end up with inside Autocast and it doesn't mean that the data, even if it did seem perfectly and the numbers were correct, it doesn't mean you're capturing and billing it. Every single one of these tools has its own problems. They're being able to have a yeah, in for one example, Office 365 licensing having something that says this is these are licenses to be actually bill and these are the licenses we pay for one is an export from 01 is an export from PAX eight you just. Go each month, put the data in and compare the two.

IAN

Then you're on your MacBook and your double thumbs up just then for those who are watching this on video has created an amazing screen. I was mesmerized by the screen behind them. You see the fireworks that have come across just at that right time when you mentioned Max 8, which is absolutely... you got that?

GARY

We get that on the radio. So yeah. So being able to run those tools on a monthly, quarterly, 6, monthly, whatever cadence that you want to run them on just to give you the confidence that the tool you're using is correct, and having somebody that can go. And do that job that you're not spending your thousand pound an hour doing that job and you're paying someone else to do that so you can focus on doing other things. I guess that was the, that's the real win that we had, is it really allowed me to plan and focus on the bigger picture and let somebody else deal with that task and they put us on a good track.

IAN

Did you agree that this was just going to be a three or six month thing? Did you kind of have your talk so right at the beginning you gave them that it gave them a list of like, this is what I want you to do, this is what success looks like in this kind of mini project. What did, what was that criteria? What did you need to find out or what to find?

GARY

Realistically, the main figures to be able to produce a sheet on a monthly basis that would align to either our kind of headline figures that we use or some other metrics that we've got may that be gross profit, may that be net profit, may that be cost per customer acquisition. You know, we've got a sheet now that says this is what we've done in the last month quarter, six months. And then comparing that the second part of it was to find a tool that allowed us to forecast and we actually settled on a not so shiny tool called fathom. Because it's really quite simple and what it does and it just allows us to forecast those things forward and it updates from our actuals everyday effectively on a monthly basis. So and allows us to forecast for a very, very low cost of about $30.00 a month. It was not, think to be able to not spend that time in the spreadsheet and then we said, look actually this has to last for a certain amount of time and our end date was Valentine's Day this year and that was the date that he was going to finish on was Valentine's Day.

IAN

Fantastic. So when you know, looking at what you're measuring now, cause you know, chucking in all the all the sayings, you know, you're measuring what matters. Yeah, all the accordions. You know, we measure what matters. Did you for going through this process, what did you measure before and what are you measuring now? Just as like as a high level KPI point of view?

GARY

I measured PL nominal codes down through the bottom line, which was that profit, and I really just cared about net profit and that was it. After this we that's come up a bit to things like EBITDA and then that's come up into adjusted net profit, gross profit. And then profit per service, as well as things like customer loss, customer retention numbers and cost of new customer acquisition.

IAN

Brilliant. So we've gone through the idea of kind of what happened. We've brought this guy in and we've got some great new behaviours and great new reports that we've got going on now. What's the outcome for you? What does life look like now? What can you do now that you didn't do before?

GARY

Well, the outcome is that actually as I alluded to, you did recruit somebody else, but unfortunately that didn't work out for us. So we're now back where we were in October and November last year, but because we've got those processes in place, we don't necessarily need someone in the short term to be doing those jobs. Because we have those processes in place and we're able to handle that internally with some of the teams just by kind of a minor amendment to someone's job role for a temporary period of time, can you please do this job and as a team of divided it around well. And I'm not saying by any stretch of the imagination that that's going to get us through the year, but because we have that we were able to now do it without the requirement for the bookkeeper in the role, and it means whoever we bring up next we'll be doing something slightly different to what we did before. That was a real outcome. I mean that that they may have cost a fair chunk of money for three months, but we've probably now recouped that money in in the two or three months of not paying for them or paying for a booking.

IAN

And you've now got a much more mature finance business performance reporting, understanding where that that money goes, which means that you can now see where with confidence where you can invest in what's kind of going on. How do you now measure the growth of the business as it's as you're driving it forwards?

GARY

I've it's still down from net profit, the end of the day really because that's what we, that's what we're here. For turnover is vanity, and profit is sanity isn't. That so... It's, they've got it all going and you can think of the title of this podcast. Yeah, at the end of the day that is the figure I'm being told, that maybe I should be focusing a bit more on my balance sheet. Well, there and my profit loss as kind of the next phase. I haven't got my head around that yet, I've got your head around.

IAN

You haven't. What does your forecasting look like? Are you forecasting cash flow and budgets?

GARY

Yet so more forecasting than budgeting because generally speaking, the size of the business to kind of work with what we have as opposed to knowing what we're going to have and we, you know, we cannot guarantee we're going to get £1,000,000 in next year, we cannot guarantee we're going to get half £1,000,000 in next. So we'll always have to work with what we've got at the moment, but being able to forecast and says, okay, actually you know what, if that customer goes, what might that look like if we pick up another customer, what might that look like if we pick that up, then do we then need to be able to then hire a new tech or a new service? Every manager or whoever that may be, so that forecasting side of it allows us to get a glimpse into the future at some magic. Yeah, it it's not real. We hope it might come off, but if you're not thinking about it, it probably won't happen.

IAN

And in hindsight, when you did, you start your MSP or did you...

GARY

Yeah.

IAN

Yeah, you say you started the MSP from a one man band in hindsight, then...

GARY

One man band is A1 Boy band, one boy band a long time ago.

IAN

One Direction, one boy band, all the all the ohh, come on, get on.

GARY

I was very lucky I had a customer who and I even went back and thanked him 20 years later and said thank you for giving me the opportunity because he if it wasn't for that man in that business, I wouldn't be where I am now because nobody else wanted, a 17 year old, spotty kid with goofy teeth to look after the IT it was not gonna happen. And 23 years later we still support that customer and I love love goofy teeth, but lots of spotty anymore.

IAN

Do you really, ohh, how amazing, ohh, that's absolutely incredible. So cash flow forecasting is something that we talk about with our smaller clients and sometimes they look at us as if we're talking to them in Mandarin. The importance of cash flow forecasting, how would that have helped you in your journey up to say up to 750K from scratch because it's not something that's front and centre of these MSPs who are kind of stabilizing themselves as it, but it's absolutely critical.

GARY

No. I think the answer is actually a little bit different because it's not actually the outcome of the forecast that is important. I think the fact that you can do a forecast is what's important because just getting yourself prepared for it is part of it. And you know, compare that to running a marathon. It's great to run a marathon, but all the work you do in the, you know, in the year 2, three years beforehand, to get yourself ready to run a marathon, it's really there is the important part of the work. The marathon is just a bit at the end, and that's kind of weather forecasting comes into it. It's the marathon. It's the bit at the end of the marathon.

IAN

Fantastic, Gary. Thanks ever so much for your time today, really appreciate your honesty, openness, and the plethora of little sayings and memes that we're going to be able to make out of this out of this podcast with the little quotes that we've come up with really interested in listening to journey, I know that everybody's going to be, you know, minds are going to be blowing a little bit with thinking about the different things that we taking away from this. What summary points have you got to help the listeners out with getting their heads around? It's where do they get started? How does it kind of all you know, how does it all kind of work for them? What would your recommendation be if you were talking to.

GARY

So my very first recommendation for anyone who is feeling a bit of pain with their finances or struggling to pay their VAT or corporation tax. And that's not right there was a book that was introduced to me by someone who actually quite big in the IT industry now called Pete Matheson. He said to me, here's a book here called Profit 1st and I'd be pretty honest with you didn't little but left the two points of the key point, because it's very American and it does go on a bit. The key points really were back from what you build someone and turn that into a percentage of what your profit should be, what your costs should be... If you can work out those, you'll also know what your corporation tax is and put that money aside each month that might be 2% of what you bill, 4% goes to profit and the rest of it is your cost. If, but that's all you did. You'll never have to worry about that again. But get that book. It's it was a, it was an absolute game changer and it led me down the path of splitting down my P&L so that I can actually start recording things correctly. And that's where my process started with this whole finance, and bit getting myself in a much more financially happy position.

IAN

Because it's all about your mindset, really, and how you approach money in your relationship to me. And whether you've read, you know, Rich Dad, poor Dad, any of these other entrepreneurial books, investment books, all these people have got so many billions of pounds that, you know, they don't have to worry about, you know, money too much. But I always think that when you pull out just a couple of little strands about just the mindset of, you know, pay yourself 1st and profit first, which is kind of what this was all about. It changes the whole dynamic of your thinking, which is exactly what's happened to you, Gary.

So again, thank you for your time. Loads of information and little Nuggets there for MSPs all over the all over the world. And if people want to get in contact with you, Gary, and have a chat about what you did and kind of learn a little bit more, how do they do?

GARY

So the easiest way to have a chat with me is via our website. There's a book of call with me on there. You can find my diary, see when I'm free and connect up with me.

IAN

Brilliant stuff. Thanks again, Gary. All the best for the future, your new finance system. We look forward to all the results popping up in your headline numbers. Thanks again, Gary. Speak to you soon.

OUTRO

Just before you go... And if you're curious about how this episode links with the ability to scale your MSP to a million or if you already there accelerate to five, then one invite you to come and take the MSG Mastery quiz and in just three minutes you're going to get 300 and seats for the scan of your business where you can identify the one or two tactics that can help you find more time engaging from your people. And help generate more leaves in your homes piece. Really simple. Just click on the link in the show notes. And if you have enjoyed this episode, we'd love to get some feedback from you by means of a rating review on Spotify or iTunes or your podcast platform of choice, we really appreciate every one of them. Now you can go and enjoy the rest of your day and we look forward to you and connect. All the best.