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5 Ways to Improve Your MSP Service Level Agreement (SLA)

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5 Ways to Improve Your MSP Service Level Agreements (SLAs)

SLAs are the foundation of your MSP business. They are essential to building strong client relationships and must be clear, reasonable and well-constructed.

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Change the Way You Think of Cash Management!

Posted April 23, 2015by Mary McCoy

"An investment in knowledge pays the best interest." ~Benjamin Franklin~ As solutions providers, you manage IT services. As business owners, you manage cash. Do you keep enough of your sales earnings in cash reserves or are you spending money faster than you're making it? In the Quick Start Guide to Cash Management, CompTIA, the world's leading provider of vendor-neutral IT certifications, establishes that there are two main schools of thought when it comes to cash management strategies, each dependent upon how much you put away for safe keeping. Are you gambling the financial health of your business?


Inching Too "Close to the Line"

Companies that operate close to their cash trend line (12 month growth rate) typically only think in the short-term and take a more "tactical... tight cash control" approach. Do you pay bills as they come in, without saving enough in cash reserves? You may find it's difficult to make monthly payments, like payroll. This can be very dangerous! Even companies with tight cash control, but a healthy amount in reserves, risk going under. That's why you have to monitor your business's cash position. 

It Doesn't Look Good

CompTIA also warns companies that flirt with the cash position line, explaining that they're devalued in the market. 

"Companies with great revenue growth and poor cash position create the impression that they may be underpricing their services or have poor internal controls. All of which translates into a “fixer upper” and not a premium value company."

Instead, you want to aim for cash balances with a cash trend line that of or above your rate of revenue growth.

 

Strategic, Long-term Cash Flow

Instead, opt to store about 2-3 months of sales revenue in reserves. This will give you more flexibility and ability to scale your business. You won't have to scrounge to make payments, allowing you to focus on more revenue-driving initiatives like building client relationships. CompTIA describes this as the "forecast and monitor" approach. During periods of heightened cash availability, tuck some of this money away so that you can have enough in your reserves to fall back on or use strategically for long-term growth and expansion. 


Cash Management In Practice

In the guide, CompTIA outlines the steps that solutions providers should take in both cash management strategies. I'll briefly walk you through these financial health best practices, but it's definitely worthwhile to check out CompTIA's in-depth, comprehensive overview of the process, linked below.

Assume again that you're working with 2-3 months of cash reserve:

1) Keep a cash planning worksheet

  • show the categories and line items for expenses and for revenues for the current month and the next two months

2) Compare revenue trends to cash trends

  • every month, compute the 12-month growth rate for revenue and end-of-month cash balances
  • use the following trend behavior to gauge health:

Screen_Shot_2015-04-22_at_3.49.15_PM

3) Set and follow a budget for expenses

  • if it makes sense, budget by category and department
  • consider allocating expenditures as percentage of revenue 

4) Establish a spending approval process

  • limit how much managers can spend without approval 
  • mandate spending approval for any items over budget 

5) Set a line of credit usage plan 

  • only allow line of credit (LOC) to be used under certain conditions, and outline those conditions

6) Plan each major investment

  • identify when the investment will be made, how it should impact revenues, and how and when the investment will be recovered
  • include cash requirements, revenue impact, and ROI and payback analysis

7) Monitor benchmarks on a monthly or quarterly basis, and compare to performance of key market players, looking at:

  • cash balance as a percent of average monthly revenue
  • cash balance growth rate compared to revenue growth rate

8) Set goals for cash balances and track progress, especially for:

  • monthly cash balance as a percent of revenue
  • growth rate of monthly cash balance

As cash ebbs and flows, knowing when to think short-term and when to operate more strategically will be crucial in developing and sustaining your managed IT services business. I've barely scratched the surface with the financial planning mapped out in CompTIA's quick start guide. Download the full PDF for more information, including a cash trend monitoring example. 


See also:

 

Get your copy of the guide now!

CompTIA-Quick-Start-Guide-to-Cash-Management-Strategies

 

Meet Mary! Mary McCoy is a Senior Demand Generation Programs Manager at Continuum, where she's worked for over two years. Mary has consulted with hundreds of partners, lending website, blog and social media support. Before that, she graduated from the University of Virginia (Wahoowa!) with a BA in Economics and served as digital marketing intern for Citi Performing Arts Center (Citi Center), spearheading the nonprofit’s #GivingTuesday social media campaign. Like her school’s founder, Thomas Jefferson, Mary believes learning never ends. She considers herself a passionate, lifelong student of content creation and inbound marketing.

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