Financial Basics with Insight from Distinguished Channel Expert: Rayanne Buchianico
Is it time to hand off bookkeeping responsibilities? Do you know what type of professional is needed?
The processes and knowledge involved in the financial side of a managed services business have changed significantly over the past decade. Between competitive price pressures, rising personnel and training costs, and ever-evolving collections problems—not to mention new reporting and compliance requirements—MSPs have to deal with many more complexities today. Getting pulled in multiple directions on things outside their core competencies is bad for any business owner, but for managed services professionals responsible for critical decisions for many organizations, the effects can be devastating.
So many things can go wrong when working outside “your zone.” For example, most entrepreneurs know little about accounting best practices and all the disparate federal, state and local regulations and tax formulas. Many MSPs cross many geographical boundaries to support the IT need of their clients. With more employees operating from their homes and hybrid work environments, the number of locations under most providers’ control is increasing, as are the potential taxing entities with interest in each firm’s related income.
The financial and legal consequences of not properly reporting revenue to each city, town and state can be substantial. Now consider all the difficulties in reconciling income and expenses for various projects, programs and recurring services and it’s easy to see why most IT firms seek the help of qualified accounting professionals.
It’s the same story most MSPs tell their clients: every business owner should focus on what they do best and leave complicated matters like information technology support and accounting to experienced experts.
Build a Firm Financial Foundation
When do most managed services businesses bring in an accountant? “Usually when it’s too late,” suggests Rayanne Buchianico, owner of ABC Solutions, a Florida-based firm that provides accounting, tax, and management systems consulting to IT companies across the United States. With decades of experience supporting MSPs, she understands the unique needs and challenges of the community and bridges the gaps by implementing best practices and industry-standard tools and automations.
Buchianico helps IT services business owners identify accounting method weaknesses and build a plan to optimize the efficiency of their financial operations. That requires the ability to delegate and make changes in management styles. “MSPs have to stop thinking that no one can manage the books as well as they can and put off reconciliation until they have time. Waiting an extra minute turns into a day, then a week and a month, and before they know it, they need to file taxes and have 12 months of bookkeeping work to catch up on.”
She also warns that when accounting updates are two months or more behind, owners could be causing harm to their businesses, as well as to clients. “Unfortunately, many MSPs don’t take that advice, and I think 60 days is too long. You should run reports and check your financial position at least at every month’s closing.” Some of those key metrics for MSPs include:
- What was your revenue?
- Did you hit your company’s targets?
- What was the monthly profit?
- Is there a cash flow problem (look at the trends)?
- What is the current level of debt?
Knowing the current financial picture of the organization is critical to its success. Business owners cannot correct problems they don’t know exist, so monitoring and managing the key metrics is the one true way to ensure the company is building long-term sustainability.
Understand the Differences Between Financial Experts
MSPs also need people in the right positions at the right time. Understanding which tasks and responsibilities take priority is the first step toward building a timeline for hiring and contracting, and those decisions are an essential part of the budgeting process. Successful owners know the importance of bringing in appropriately skilled professionals at the proper company growth stage—to get the most value from each investment.
That philosophy holds true for the financial side of the house, too. Understanding the differences between bookkeepers, accountants and CPAs helps MSPs pick the appropriate professional for their current and future business needs. Buchianico points out the importance of having somebody in place to review and post transactions and reconcile the accounts. “At the very least, every managed services provider should have a bookkeeper. However, it’s one of the last things many business owners want to spend money on because they feel like they can do it themselves, which is fine as long as they are actually following through on that commitment.”
The problem is most MSPs didn’t start their businesses to be bookkeepers. Few providers have that type of expertise, and the vast majority of tech professionals will waste far too many billable hours and dollars focusing on those activities. Owners that hand off those tasks to an independent or part-time bookkeeper, or even a spouse, friend or another trusted person with good financial skills, can concentrate more time and attention on clients, prospects, employees and other core management responsibilities.
The objective should always be to put properly skilled people in that key financial role. A solid bookkeeping team strengthens the company’s financial side and provides MSPs with timely information needed to make critical business decisions.
For many organizations, the next financial development step is adding an accountant or fractional Chief Financial Officer (CFO) to the mix. MSPs greatly benefit by having someone to make sense of bookkeeping information and help them make sound business decisions based on the metrics. Those individuals or firms generally have more accounting and consulting expertise than an entry-level bookkeeper. Buchianico points out that “many MSPs will struggle to find a CPA who would want to get involved at that level. However, a number of organizations specifically coach managed services business owners on budgeting, cash flow analysis, KPI metrics and other CFO-related activities to ensure their success.”
One final role is a tax professional. Buchianico notes that these experts should be specifically licensed by the Internal Revenue Service in the areas of tax law and preparation, and knowing the differences between the various communities is critical. “Not all tax professionals enjoy doing CFO business analysis work, and not all accounting-type CFO people can or choose to do tax preparation. Finding one person who enjoys and is good at both practices is possible.”
Is an Accountant or Bookkeeper Best for Your MSP?
Most small businesses can start with a bookkeeper. As those organizations grow and the complexities of their financial transactions and tax liabilities increase, bringing in (or contracting with) professionals with more experience and consultative expertise is a good next step.
Much like IT security, the greater the business’ potential financial exposure, the more knowledge and skills it takes to minimize risks. MSP business owners should periodically evaluate their level of accounting support and ensure the right professionals are in place to limit the headaches with IRS and taxing authorities and maximize profits. Accomplishing those goals more than compensates for the extra costs of working with higher-level financial experts.
Ease the Accounting Burden with Automation
Month-end accounting tasks, like chasing payments, are time-intensive. The reality is many MSPs simply don’t have the time or resources to devote to moving the collections process along when customers are slow to pay. They quickly learn if you’re not managing your accounts receivable, cash flow issues follow.
With or without a bookkeeper, your MSP can ease the burden and hassle of monthly billing, collections, and accounting tasks, and achieve effortless cash flow with ConnectBooster. As the Channel’s demonstrated leader in accounts receivable automation, ConnectBooster has helped thousands of MSPs simplify accounting tasks, including invoice reconciliation, to save up to 20 hours each month. See for yourself—schedule a demo at www.ConnectBooster.com.