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16 ways for MSPs to manage cash flow during Covid-19
- 28 April, 2020 07:27
Arlin Sorensen (ConnectWise)
In the world of Covid-19, the age-old adage that 'cash is king' has never carried more significance for managed service providers (MSPs), as the need to preserve and manage finances heightens.
As revealed by Channel Asia, vendors can help partners overcome escalating economic challenges through a commitment to three types of support packages. Following off-the-record briefings with more than 80 partners across Asia Pacific, the delivery of financial aid unanimously tops the list of requests, followed by shifting all end-user business through the channel and offering increased programmatic flexibility.
But despite such a call to action, partners must also take responsibility through a strategic approach to managing cash flow.
“As the ‘war’ drags on, cash is the number one area of concern for both businesses and personal survival,” observed Arlin Sorensen, vice president of Ecosystem at ConnectWise. “Businesses must pick a few things to focus on, and once those are in place, grab a few more.
“Not every item will apply to every business or life, so take what is useful and ignore the rest. But how you come out the other side of this current situation will largely be related to the way you manage your cash.”
In offering 16 ways for MSPs to manage cash flow during the pandemic, Sorensen acknowledged that such a long action list cannot be tackled at once, rather over a longer period of time.
“Time is on your side because this is going to last for a while,” he advised. “So get started and put things in place to ensure you have the cash that you require.”
Here are 16 ways for MSPs to manage cash flow during Covid-19, according to Sorensen:
1 - Create a team and communicate regularly - at least daily internally and weekly externally
a. Internal team:
- People in the know that are responsible for different areas that impact cash directly – create a cash team
- Likely not the normal leadership or management team – probably need a few different people
b. External team:
- Insurance broker
- HR consultant
c. Connect with key vendors and distributors
2 - Leverage government programs (federal, state and local) to generate cash
a. Government programs
b. Sources of info
- Government websites
3 - Know the numbers
The time to begin is now, don’t wait until things get tight. Get all accounting entries up-to-date and throw the shoebox approach away, look at the data from accounting and other management systems and become a student of the numbers. MSPs must realise that cash is far more than the amount in the checking account, that’s not nearly enough information."
It’s also important to monitor available cash flow daily. Free cash flow is cash available that is not committed to anything. Don’t forget to share reports with external resources and ensure records are being kept that will support any government program the business is currently participating in. Watch accounts receivable numbers closely and make a point of talking with customers early and often, while also determining the last date to pay.
4 - Budgets are key
a. Plan for three scenarios
- Expected annual plan
- 10 per cent less
- 30 per cent less
Compare these numbers to the actual budget continually and leverage accounting systems to achieve this. Also ensure that scenarios are adjusted and re-forecast the expected budget as the true results emerge.
5 - Cost containment and cost cutting
Now is the time to get rid of excess and fluff such as entertainment and travel. Look at credit card expenses for unnecessary and/or unapproved expenses and watch the recurring fees from checking and credit cards.
It’s also time to talk to the suppliers – don’t just stop paying the bills. Instead, have a conversation about deferment or other creative options (some of this is mandated by federal or state programs) which spans rent, insurance, mortgage and interest among others. Ask the hard question, ‘do we really need this expense right now?’ Then potentially re-negotiate or extend some contracts or leases accordingly.
6 - Reporting
MSPs must begin to report budget vs. actual, while assessing the available cash on a daily basis and understanding cash burn rate figures and customer risk through ratings and profiling.
7 - Pay bills on time
Don’t assume vendors will accept non-payment or slow payment, instead have the conversation first. Remember that MSPs are not banks, and neither are suppliers.
8 - Focus on payroll
Unsurprisingly, payroll is usually the biggest expense item given that people are the greatest asset for a business, so work to keep them if possible.
Start by reducing executive team pay and reduce executive team bonuses while cutting anyone who is not a culture fit or a ‘C’ player. Now is also the time to control overtime and furlough employees that can’t work (onsite) if they can’t be redeployed to something else.
Consider a company-wide reduction or deferral and assess whether commissions may need to be deferred. To help with this, create a reduction in force (RIF) list with trigger points to take the emotion out of the decision. But it’s worth understanding the impact on government programs before cutting staff.
9 - Planning is critical
What happens if someone gets sick? Is a team structure in place to include back-ups for key roles? Is everything documented so business continues?
Now is the time to ensure legacy and life plans are current, in addition to updating business continuity and disaster recovery strategies. Business owners usually think of these with natural disasters but this is a global health and economic crisis. Update financial plans with an external resource and focus on survival but be flexible enough to adjust strategic plans if needed. And don’t forget to plan for post-event – focus on thriving.
10 - Expand credit lines
MSPs must ask now before it’s really needed because banks loan to people who prove they can repay. Therefore, draw down cash on the credit line and put that money in a different bank while ensuring you don’t exceed the guarantee limit.
11 - Continue to sell
Even during a time of crisis, it’s important to remember that there are always opportunities. Focus on industries less impacted and be smart in marketing activities by providing value and remaining top of mind. Have a marketing plan ready to ramp up as recovery begins to ensure the business can thrive.
12 - Change credit policies
Make it as easy as possible to get paid and understand how much reduction the business can stand without it being destroyed. Also, now is the time to understand how to deal with contract adjustments or terminations in the long-term.
13 - Tightly manage the balance sheet
As a business owner, don’t sacrifice your own financial health. Instead, look for assets that you may be able to convert to cash if necessary. This is likely a marathon, not a sprint, so manage that way.
14 - Communicate, over-communicate, and do it again
It’s important to get into a regular rhythm through meetings at different levels – all company, department, leadership and ownership, alongside one-on-ones, coffee over Zoom and virtual happy hours. Connect with customers virtually and ensure value-adds are offered because everyone wants social interaction in some capacity.
Also remember to keep everyone engaged – personality types need to be acknowledged and each requires a different level of connection. Maintain the culture at all costs and have an intentional communication plan that is owned by someone to verify it’s happening.
Working from home is different and has unique challenges so provide resources, ideas and best practices through leveraging communication tools such as video. But remember that each person receives communication differently so use all senses – email, text, voice, video, collaboration tools, face-to-face, (if possible), one-on-ones and meetings.
15 - Leverage peer networks
Now more than ever a peer group can provide significant value to provide perspective on the situation from someone in the same boat. This can also help foster creative ideas from others in the same situation, as well as the potential sharing of resources if Covid-19 strikes. Other benefits include increased accountability for plans and goals.
16 - Maximise tools
Now is the time to leverage tools to provide information in a real-time manner through using dashboards to share critical information with team members.
Arlin Sorensen founded and served as CEO of HTG Peer Groups before HTG was acquired by ConnectWise in 2018. HTG, now IT Nation Evolve, is one of the most respected communities of technology service providers in the market today.