I’m going to be presenting at the HTG Summit in Dallas on April 22nd – are any of our managed services readers going to be there?  If so, let’s meet up for a chat.

I’m fired up about presenting at this conference.  There’s almost nothing better to me than to get a bunch of entrepreneurs together in one room so they can spend quality time away from their business – focusing on new ideas and finding ways to improve!

If you aren’t already a part of a group like HTG, MSPCoach, True Profits, or something similar – I suggest you get involved right away.

I hope to see some of you there!

MRC

I met with some good friends in the managed services industry this Friday while traveling to New York City.  We had a discussion about their business and took a look at their financial statements.

Two important lessons came from our discussion, and they both have to do with keeping a very detailed profit and loss statement. Most small businesses – including managed service providers – keep way too general of a P&L; leaving the owner without the visibility they need to effectively manage their business.

The first lesson we covered in the “Do it profitably” section of MSP Coach.  The lesson is that by keeping a detailed P&L you are much more able to manage to profitability.  When you are able to very clearly see the revenues and costs associated with each of your products and services, you will find ways to increase your profitability.  Without that detailed clarity, you’ll miss many opportunities because they’ll be buried deep within your numbers.

The second lesson is one we had not yet covered in MSP Coach, but that is absolutely critical for everyone to understand.  By keeping a very detailed P&L that separates out all of your products and services clearly, you will have a clear demonstration of the equity value of your business.

What do I mean?

In our industry, different types of revenues are valued in the marketplace very differently.  For example, hourly break-fix revenue is valued at roughly 30% of sales, while managed services revenue is valued at nearly 100% of sales.  If you didn’t have these broken out clearly, a potential buyer of your business would have no choice but to discount the value of your business due to a lack of understanding about your revenue streams.

Let’s use some real numbers to see how this might impact the perceived value of your business.  Let’s assume that you have $1 million dollars in revenue last year, and you have it presented on your P&L as:

Revenue – $1,000,000

COGS – $600,000

While these look like healthy numbers, as a potential buyer of your business, I don’t know enough to give you as strong of a valuation as I would if your numbers looked like this:

Recurring revenue – $500,000

Non-recurring revenue – $500,000

Recurring COGS – $200,000

Non-recurring COGS -$400,000

Why is this second set of numbers that different?  A few reasons:

1. I can now clearly see that fully half of your revenues are recurring revenues with nice margins, which I will assign a much higher multiple to than I would non-recurring services
2. I can now also see that your non-recurring revenue doesn’t have good margins, which allows me to investigate the cause and determine if I could improve the situation
3. In the first scenario, because of the lack of visibility, I would have no choice but to assume that all of your revenues are non-recurring, resulting in an artificially low valuation of your recurring revenues.

Please don’t overlook the value of this lesson – get your P&L set up properly so you can track the details.  If you don’t, you are going to rob yourself of both immediate profits and longer term equity value.

MRC

For those of you that aren’t familiar with Dan Kennedy -  you should be.  Dan is one of the leading direct marketing experts in America, and is quite the personality.  He is also a prolific writer on the subjects of entrepreneurship, sales, management of people – and just about everything he writes is worth reading.

On his blog today, he has a post about taking chances and understanding risks and what you can and can’t control.  I thought a particular section of the post was worth sharing here:

Here is what I know: The changes we make will be more important than the changes that occur around us. I know you win by focusing on what you can control. I know that money never really dries up; in different circumstances, it moves differently. There’s always plenty available. So, we’ll prosper. Period. I know that, in microcosm, Halbert was right; there’s hardly a problem that can’t be solved with a great sales letter – the macro version, most problems can be solved with better marketing. You can sell your way out of just about any set of adverse circumstances. (And a whole lot of problems persist purely because of lack of good salesmanship.) I know that we actually do have more to fear than fear itself, but that most decisions made based on fear turn out badly. I know that Pollyanna positivism, whistling in the dark graveyard is dumb, too; you have to create reasons to be optimistic, so you get to make decisions based on positive expectations. It’s foolish and dangerous to just be or act optimistic. There are a lot more things I don’t know. Like whether Gore’s right. So I focus on working with the comparatively short list of things I do know.

As you may be able to tell, Dan is all about personal accountability, and taking control of your own destiny to the greatest degree possible.

I can’t think of any more important message than this right now.  When the economy sucks, it’s easy to throw your hands up in the air and lower your expectations of yourself, your customers, and your business.

Don’t do it!

Continue to invest in yourself and your business every day – approach your day with the right attitude, try new approaches to sticky problems, put in an extra hour of prospecting each day – and you will eventually reap the fruits of your labor.

MRC

www.mspcoach.com

Hi everyone,

Josh and I have been working on a project that I’m happy to say is ready to roll.

MSP Coach is an educational site for the IT service provider community, particularly those serving small and medium sized businesses and those that are interested in developing a managed services business.

We’ve really enjoyed blogging – we learn a lot from taking the time to write about what’s in our heads, and we’ve established some great relationships with many of our readers.

But we’ve realized in the process that we have a lot to share that is difficult to capture in a blog, and that there is a real hunger for good information on our marketplace about how to grow a successful managed services business.  I say good information, because there is no shortage of information these days, but most of it is from vendors trying to sell you a product.  A lot of that information is still good, but it’s definitely biased, and it doesn’t always come from a voice with experience in this industry.

We have experience as time and materials service providers, and we have experience building a managed services practice from scratch to several million in revenue over the course of a few years.  We have a lot of valuable lessons to share – and we enjoy sharing them with the MSP community.

MSP Coach is free (for now anyway!), so we hope you sign up and take a look around.  We are just getting it started and this is a “nights and weekends” gig for us, so please be patient – more content will be added as we are able to do so.

If you have suggestions or feedback, we would love to hear from you.

MRC