October 6, 2020
COVID-19 has forced technology service providers (TSPs) to take a good hard look at their profitability and financial stability. This has proved easier said than done for some, as financial visibility hasn’t historically been top of mind. Now, with a pandemic wreaking havoc on markets everywhere, providers have had to drill down on how to leverage their tools and processes to keep costs down and maintain an elastic business.
Brad Schow, vice president of consulting services at ConnectWise, has been on the front lines with TSPs during these challenging months from such a financial perspective. We sat down with Brad to chat about the current landscape and get his advice to help businesses maintain financial wellness.
Financial Stability & Visibility
According to Schow, a lot of the entrepreneurs running TSPs are more or less familiar with their business model. And they know if they’re being profitable. However, some don’t have that timely visibility into their financials, and generally aren’t aware of the levers they need to be able to push and pull. Up until now, they have, for the most part, been able to get away with that. Then boom, COVID-19.
ConnectWise’s Brad Schow
“What we found is that the companies that previously had smart insight into their own finances were in a pretty good position,” said Schow. “But some TSPs just weren’t there. To get there, they needed to ask themselves a few questions. ‘How do I get good, accurate visibility into my financials on a month-to-month basis? Can I project forward if there are reductions in any of those revenue areas? What does that mean for my business? Can I afford to keep these people? If I lose 20% of my project revenue, what am I going to do with my project people?’”
Essentially, with the onset of the pandemic, TSPs had to peer through the financial fog. Now it has become vital to figure out the answers to those tough questions quickly, and project forward.
“I think most people did the best they could with trying to get their costs of goods sold. And then they were in a position to make cuts if they really had to,” said Schow. “That was the first level — folks going through their other expenses, such as sales and general admin expenses, to see which ones could be cut. The less mature companies made more short-term decisions; the more mature companies were able to project ahead and figure out how to remain profitable. It was just two completely different thought processes.”
Pivoting During a Pandemic
So the mature companies are actually doing pretty well in terms of financial stability considering the state of things. Thriving, even. Some are rebuilding their plans; some are acquiring other shops and revamping processes. Whatever the case, a lot of TSPs are actually performing as well or better than they were before.
“Our advice all along has been to build your business so that it can be nimble, no matter what happens with your revenue in the economy,” said Schow. “This really comes down to understanding your labor and your tool costs on the services that you’re delivering. And if revenue does go down, you have to make early and hard decisions to make cuts. This is so you maintain your ability to be profitable. And then on the expense side, like your sales and your general and your admin expenses, be super conservative.”
The big takeaway here, according to Schow, is to have a good, conservative handle on your expenses. Make sure that your cost of goods sold is nimble enough that you can grow, scale or cut back based on your revenue. It all ties back to the fact that you must have timely insight into your financials on a monthly basis.
“The key to the whole thing is understanding your numbers. Then, make sure that you have people who are managing that as tightly as possible,” concludes Schow. “Financial visibility and management, especially as you grow and scale, is vital.”
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