Welcome to our recap of the final webinar from the 2024 Three-Part MSP Webcast Series! We featured industry leaders Peter Kujawa, VP & GM of Service Leadership, Inc., Mitch Leahy, VP & GM of the Office Equipment Group at GreatAmerica Financial Services, and Lee Rozeboom, VP & Managing Director of Sales at GreatAmerica Financial Services throughout the series.
In the third part of the series, titled “Leveling Up: Build an Aggressive and Attainable Budget,” Peter and Lee covered the importance of creating a challenging yet realistic budget. They discussed how top-performing solution providers use these budgets to gain insights and make informed business decisions throughout the year. The webinar also covered practical steps for building such a budget and linking incentive compensation to budget attainment, providing a clear roadmap for the upcoming year.
If you missed any part of the webinars or want to watch them again, click here to access the recordings. Otherwise, keep reading to explore the key takeaways from this session and how you can apply these strategies to achieve greater profitability and growth in your business.
Did You Know U.S. Election Years Impact Industry Performance?
Peter shared insights on how U.S. presidential election cycles affect industry performance. Initially skeptical, his team found a clear pattern: revenue growth significantly declines during election years, as seen in the past three cycles, including 2020. This trend is expected to continue in 2024 unless there’s an exceptional fourth quarter.
Interestingly, the years following elections show a positive revenue growth trend, likely due to the reduced uncertainty in peoples’ minds. Businesses tend to hold back on spending and contracts during election years, but once the election is over, they gain more confidence in the future.
As the year ends, Peter advises:
- Keep Pushing: Continue pursuing deals to impact this year’s performance, don’t sandbag!
- Avoid Delays: Don’t delay deals; pursue them aggressively.
- Accelerate Projects: Move up projects planned for early next year to boost your current year's results.
Planning for the Upcoming Year
It’s really important to plan for the next year by reflecting on the current year’s successes and challenges. The goal is to be ready to implement the new budget by early January, rather than waiting until February or March.
Focus on Value Creation Strategy
- Revisit Your Goals: Assess your long-term value creation strategy. Are you on track or behind? This will influence your budget and business decisions. For example, if your company is currently worth $3 million and you aim to reach $6 million by 2033, you need to take incremental steps each year to achieve this goal.
- Define Your Strategy: Understand your business goals, whether you’re an empire builder, value builder, or balance builder. This will shape your target customer profile, tech stack, and new solutions. Your value creation strategy should guide all these decisions.
- Set Realistic Growth Targets: Determine the growth needed to achieve your long-term goals. For instance, doubling your company’s value in five years requires more aggressive growth than over 10 years. This involves setting specific targets for revenue, profit, employees, and clients.
Budgeting is crucial for guiding your business towards its goals. It helps manage risk, improves financial forecasting, and increases the likelihood of success. Companies that excel in budgeting, especially those backed by private equity, tend to outperform others.
Steps to Budget Creation
Creating a budget is a critical process for any organization, and there are many ways to build one that works best for your company. Here, we’ll explore two primary methods for MSPs: top-down budgeting and bottom-up budgeting.
Top-Down Budgeting
In top-down budgeting, the process begins with the shareholders, often including the owner and CEO of the MSP. If the organization is large enough, there may also be outside shareholders, or a board involved. The shareholders set a goal for the upcoming year, which the CEO then moderates to establish a realistic and achievable target.
Once the goal is agreed upon, the VPs of Sales and Services break down this goal into manageable chunks. They determine what the budget numbers should look like, and it’s then up to the rest of the organization to figure out how to achieve these targets.
Top-down budgeting is typically quicker and involves less buy-in from various levels of the organization, making it a common choice for MSPs because of its efficiency and simplicity.
Bottom-Up Budgeting
Bottom-up budgeting takes a different approach. It starts with assessing the revenue and cost commitments that can be realistically made. The VPs of Sales and Services identify profit opportunities and work to convince the CEO that the proposed budget is challenging yet attainable. It’s good to be aggressive yet realistic.
The CEO and CFO then present this budget to the shareholders for approval. This requires more detailed input from different levels of the organization, making it a bit more complex but potentially more accurate.
The “AA” Standard: Aggressive and Attainable Budgets
Regardless of the method used, it’s important that your budgets are both aggressive and attainable. An aggressive budget pushes the organization to excel and maximize value, which is essential for keeping shareholders satisfied. However, it also has to be attainable to make sure that your goals are realistic and achievable without demotivating your executive team.
Setting overly ambitious goals, such as a Big Hairy Audacious Goal (BHAG) of significantly higher growth than ever achieved, can lead to disappointment and demotivation if the targets aren’t met. It’s important to balance ambition with realism to maintain motivation and make sure that the executive compensation tied to budget achievement stays fair and motivating for your team.
BMW Budgeting
Once you become proficient at budgeting, you can incorporate BMW (Best, Most Likely, Worst) budgeting. This involves planning for three scenarios:
- Best Case: What happens if revenue growth is exceptional? What additional investments will you make if everything goes right?
- Most Likely Case: This is your standard budget, based on realistic expectations.
- Worst Case: What if the economy declines or you lose key customers or salespeople? How will the business react?
Planning for these scenarios helps you make informed decisions ahead of time, rather than reacting under pressure.
Key Concepts in Budgeting Service COGS and Sales & Marketing
For service organizations, a key concept is to make sure that for every dollar added in service wages, at least $2.50 of service revenue is generated. Sales budgeting, on the other hand, is based on the gross margin output of the total business. The sales multiple of W-2 should be at least eight for service-centric MSPs and five for product-centric organizations.
Additionally, for every dollar of gross margin added to the organization, only 50 cents or less should be added in new SG&A (Selling, General, and Administrative) expenses. This approach helps you drive additional profitability over time.
Where Do You Fit in Financing?
When it comes to budgeting and financial planning, GreatAmerica Financial Services plays a big role in supporting MSPs. While technology equipment financing might not be the most exciting topic, it’s essential for driving the functionality and success of your business.
The world has shifted towards a monthly consumption model, where everything from phone services to software is subscription-based. GreatAmerica helps MSPs integrate this model into their business strategies to improve sales motions and functionality.
Over the past five years, GreatAmerica has provided financing for thousands of MSPs, helping them develop strategies to close more business on a monthly recurring revenue basis, with the goal to help them achieve greater success, regardless of their size or stage of growth.
One key area where we can make a significant impact is in standardizing how customers purchase from MSPs. Instead of relying on various financing sources, MSPs can create a consistent strategy that supports their long-term growth and predictability.
Start planning your budget today and explore GreatAmerica technology equipment financing options to make sure your business is ready to thrive in the upcoming year. Contact us to learn more about how we can support your financial goals.
If you found this recap helpful and want to dive deeper into the topics discussed, be sure to watch the full webinar series here.