We’re halfway through the year, and if your MSP is meeting your business targets – great! If you haven’t set your goals, mid-year is a great time to review. Setting business goals and targets should be an annual habit. Not exactly budgeting, but not far from it either. This is not an exercise of controlling costs, but rather it is an exercise of setting goals and reviewing progress throughout the year.
Steps for setting targets
There are a few steps each IT services owner should take at the beginning of each fiscal year. They are listed below. Some people (like me, for instance) choose to do this before the end of the year. Others might like to wait until one year is completed and closed before setting goals for the next year. The reason for this varies from creating departmental targets, calculating quarterly or annual performance bonuses, or simply because it makes sense for them to do so.
So, where do you start? Here are a few of my favorite goal-setting activities.
1. Update Your Business Plan
When was the last time you reviewed your MSP’s business plan? Hopefully, it was last year.
If not, pull it out, blow off the dust, and give it a read. You will probably find that the plan you put into place originally shows little resemblance to the business you are running now. Your business plan should always reflect your current plan and vision for the next two years.
>> When you created your business plan (or last updated it), you researched and identified your SWOT.
>> What strengths have you developed? Have you noted any weaknesses?
>> What will you do to overcome them?
>> Your opportunities and threats have probably also changed.
The SWOT analysis helps you identify and focus on specific areas of your business. You should sell more of your strengths, that’s a given. For your weaknesses, you have a decision to make. You can focus on improving them, outsource them, or avoid/ignore them entirely. Some weaknesses cannot be ignored. As an IT professional, if your weakness is cybersecurity, you need to either outsource this to someone with this strength or take steps to improve. Ignoring is not an option.
The SWOT analysis helps you identify and focus on specific areas of your business.
Document your plan for growth if growth is part of your plan. Be specific when documenting your plan. If you plan to hire, list who your target is, the skills they will have, and the salary you plan to pay. If you plan to increase your marketing efforts, list the details so you can return later to check off the ones you accomplished and remind yourself of the ones you have yet to implement.
You may not need to change your business plan every year but make a habit of reviewing it.
Your business plan is the road map for your company. You may not need to change your business plan every year but make a habit of reviewing it. Stay focused on your goals and the big picture. As business owners, it is so easy to get lost in the details. At least annually, take a look at the forest.
2. Review expenses
Mid-year is a good time to review expenses and prepares your MSP for planning next year. In your accounting system, run a report on your vendor transactions for the year, separated by month. This will show you how much money you are paying each vendor each month. The simple report makes reviewing your expenses super easy. Review the value of each vendor bill. Cancel any services you are no longer using. If a vendor expense looks higher than you expect, investigate to ensure the billing is accurate. This 15-minute process can save hundreds of dollars even if you find just one mistake.
This 15-minute process can save hundreds of dollars even if you find just one mistake.
3. Revenue targets
Revenue targets are my favorite numbers to play with. I will review this throughout the month to see how close I am to meeting my target. It’s always nice when I meet or exceed my target. If I don’t, I want to know what went wrong. Whether it was a result of forgetting to invoice, losing a client, or a reduction in projects, if it is something I can correct, I want to do it as soon as possible.
Setting targets is a rather simple process. Prepare your P&L for last year comparing it to the year prior. I like to run reports on an accrual basis but use whichever one you prefer. Be sure to show the percentage of change between the two years. Hopefully, it is a positive percentage change in revenue. This is your baseline for the target.
If your managed services had a change in revenue of 20%, you want to increase your current year’s managed services revenue by at least 20%. Depending on your company, you may want to shoot for 25% or more. When setting your targets, be sure to make them attainable. Setting targets of 200% increase in revenue might be what you want, but it might not be realistic.
>> Remember that your goals should be SMART: Specific, Measurable, Achievable, Realistic, and have a Time Frame.
>> Managed Services revenue increase of 20% this year is an example that meets all five objectives.
4. Profitability targets
Similar to Revenue Targets, take a look at your overall profitability. If increasing profitability is one of your goals, look at your historical profits over the past three years. Gross profit margins will determine if your products and services are priced appropriately. Labor Efficiency Ratios help determine if you are adequately staffed. Customer Effective Hourly Rate illustrates which customers are profitable for you and which ones are bringing down your margins.
As you look at the trends of gross and net profit margins over the past three years, take note of which direction the trend is moving. Set your targets accordingly. If your net profits are increasing two or three percent over each year, and you want to get a little aggressive, consider setting your targets for an increase of five or six percent. If your trend is showing a downward slope, investigate why and take corrective action.
Most importantly, when setting your targets, be sure to check on them regularly. If you are not reviewing your financials monthly and measuring your progress, you are missing out on opportunities to steer your business in the direction you want.
You are the driver and navigator. Without your guidance, the company will steer itself and you probably won’t like where it takes you.
ABOUT THE AUTHOR
Rayanne Buchianico provides MSP accounting and PSA Consulting services to IT Professionals and is the owner of ABC Solutions, LLC. Rayanne is a member of the ModernMSP community and a frequent contributor to the ModernMSP blog in addition to her own podcast, PSA Impact.