Why Are Most MSPs Reactive with Their Finances, and How Can They Become Proactive?

It's a scenario many Managed Service Provider owners know all too well: you're experts at managing your clients' complex IT environments, but when it comes to your own business's finances, things often feel... reactive. If you're nodding along, you're certainly not alone.

Casey Seaborne, Director of Business Development at Stride, recently shared his hot take on this common MSP challenge. "Most MSPs have reactive accounting, tax, and finance functions," he stated. This means you're often looking backward, scrambling at year-end, and making financial decisions without a solid, forward-looking plan tied to your business goals.

So, why does this pattern emerge so frequently in the MSP space? And more importantly, what steps can you take to shift your MSP from financial reactivity to a proactive, strategic approach? Let's explore Casey's insights.

The Core Problem: Why MSPs Default to Reactive Finances

"By reactive, I mean, you're not setting a plan," Casey clarifies. "You're not aligning your foundations of your bookkeeping, your accounting, your tax to the goals for your business... And you're also being reactive in terms of closing your books after the fact when it's too late or the year-end scramble as so many do to get ready for tax time."

This isn't due to a lack of desire for order, but often a result of the MSP owner's reality:

• The Overwhelmed Owner: As Casey puts it, "million to 5 to $10,000,000 MSP owners are busy. Your sales, your operations, your consulting, your tech, your accounting, your finance – your functions that really inherently aren't meant for you to sit in that hat." When you're pulled in so many directions, finance often becomes an afterthought.
• The "Good Enough" Fallacy: "Most MSPs, hey. I'm getting paid. I'm making money. That's good enough. I'll let my accountant handle it," Casey observes. But this often leads to incomplete books handed over at tax time, much to the CPA's chagrin.
• Consequences of Reactivity: This leads to the infamous "year-end scramble" to spend money, not always strategically, but primarily to reduce tax liability due to a lack of year-round planning. It also means missed opportunities for cost optimization, strategic investment, and an accurate understanding of your business's financial health.

Shifting Gears: The Foundations of Proactive Financial Management

How do you break this cycle? "It starts with the bookkeeping foundations," Casey emphasizes. This isn't just about compliance; it's about building a system for financial clarity.

• Make Monthly Closes a Priority: "If you're not closing your books on a monthly basis and you're struggling to collect revenue, start there," Casey advises. "Don't worry about valuation. Don't worry about strategies. Start there." This regular rhythm is fundamental.
• Align Your Chart of Accounts: Is it generic, or tailored to the MSP model? Casey stresses finding a partner who "understands your industry," because "just because they're a CPA or just because they work with other professional service businesses doesn't mean they're experts at deferring revenue, collecting a lot of upfront costs or pass-through costs... They might not understand that process or even, hey. What should my gross margin be on my managed services? How do you calculate utilization rate?"
• Understand Your Revenue Cycle: Every business, including yours, must "get work, they do work, they get paid for work." Casey urges MSPs to scrutinize this: "How easy is it to go from a proposal to a signed closed deal to an invoice to getting paid from your clients?" This is where many bookkeeping complexities and delays originate. If you can't answer these questions easily, your foundations need work.

Finding the Right Partner: It's About Trust and Expertise

The thought of handing over financial control can be daunting. Casey acknowledges this apprehension but offers a crucial reframe: "Think of it with your clients. They probably find a lot of liability giving an MSP all their access to their logins, their cyber, to everything that business functions on, and they rely on you."

Just as your clients need to trust your MSP's expertise, you need to find a financial partner you can trust – one that acts as a true partner, not just a vendor.

• Seek a "Solutions Partner": Casey distinguishes between a service provider who just processes transactions and a solutions partner who asks, "Mike, where do you wanna go with this business? Here's what you can do, here's what you can't do, and here's what the plan is to make sure you receive an investment on this function that you're now investing in."
• Demand MSP-Specific Knowledge: Your financial partner should understand the tools (PSAs like ConnectWise, Autotask), metrics (MRR, ARR, Gross Margin), and unique financial flows of an MSP.
• Verify Their Security: Practice what you preach. Inquire about their data security practices (e.g., SOC 2 certification or alignment), ensuring they meet the standards you uphold for your clients.

The Opportunity Cost of DIY Finance

Still tempted to do it all yourself? Consider the opportunity cost. "Most CEOs of an MSP, if you were a billable hourly rate technician, you'd be $175 to $400 an hour," Casey calculates. "You're spending ten hours a month on your books... you can do the math. That's $2,500 to $10,000 a month. You can hire a resource or multiple a proactive way for that investment instead of just eating that as a business owner where you should be working on your business, not in the functions of your business."

Embrace Proactive Finance for a Healthier MSP

Moving from reactive to proactive financial management is a game-changer for MSPs. It's not just about cleaner books; it's about gaining predictability, making informed strategic decisions, improving profitability, and ultimately, increasing the value and resilience of your business.

As Casey Seaborne's insights reveal, this transformation starts with acknowledging the common pitfalls, committing to financial foundations, and seeking out expert partners who truly understand the MSP landscape. By taking these steps, you can move beyond the year-end scramble and build a financial engine that powers your MSP's growth and success.