Technology Reseller talks to MSP Finance Team co-founder Daniel Welling about the challenges facingMSPs and what they should be doing to overcome them
I’m forever being told this is a golden age for MSPs, so why do I feel so hard up?
That’s a question many MSPs might have pondered and for which Daniel Welling, Co-founder of MSP Finance Team, has a simple answer: it is because MSPs are entirely disinterested in the financial management of their business and would much rather be solving a technical issue or helping their clients.
This lack of interest and awareness, he says, creates all sorts of problems.
“For example, most traditional accountants would put staff costs below the line as an overhead, so the MSP might think they’re making lots of margin until they allow for their labour costs – often their own salary which doesn’t even go through the P&L because they pay themselves by dividend – at which point they realise they’re making no money and, in many cases, are actually losing money. That’s cloaked by the fact that their business can still give them a reasonable income. They can earn a living, but in reality they’re being paid less than they would if they got a job somewhere else.
“I say this with a smile on my face and tongue in cheek, but the tragedy of the MSP market is that so many MSPs are putting in so much effort and ultimately not getting the rewards they should and that is diminishing growth. If more MSPs sold what they do at a higher price, the market would have more money, there’d be more margin and it would be a better industry overall.” Not doing this, suggests Daniel, creates disfunction in the market.
“Vendors need MSPs to be competent sellers of their products and services to end clients. But if MSPs are working at a stressed rate because they’re not earning enough money, they won’t have the overhead, the bandwidth to be able to manage their clients properly and sell more of what vendors want them to sell.
“If MSPs were sufficiently knowledgeable about the breathing space they needed to create in their business, which finance would tell them, then they’d be able to improve throughput for the vendors. That’s why vendors quite helpfully and correctly invest so much in peer communities. It’s why Connectwise bought HTG Peer Groups (rebranding it as IT Nation Evolve) and Kaseya bought True Methods – to help educate and elevate the financial maturity of the market.”
Clearly MSPs, too, have a role to play. “Their first challenge,” says Daniel, “is to become enthused with what good finance can offer, in terms of reaching the future position of being able to sell their business and realise its value and not having to work all the time on mundane activities. The second challenge, once enthused, is to gain a level of maturity and understanding [of financial management].”
MSP Finance Team aims to help MSPs achieve both these aims through a combination of mentoring and virtual financial directors; bookkeeping and accounting services created exclusively for MSPs; and MSP Meetups, where clients and prospects can learn from each other (and sponsors) while indulging in their love of motorsport.
Lessons learnt
Daniel co-founded MSP Finance Team in September 2021 with Adam Morris, founder and CEO of Avagio IT Services (acquired by Optimity), to share what they had learnt founding, developing, selling and acquiring MSPs over the previous 20 years.
“When I started mentoring other MSPs, after the sale of my business (amicitia, acquired by NewCMI in 2014), my strapline was ‘I help MSP owners make different mistakes to the ones that I made’. That was slightly tongue in cheek – nobody’s got all of all the answers, but two heads are better than one,” he explains.
“My understanding of the marketplace intersected with my understanding of the maturity that financial management brings in growing and developing a business. I had been under-served by regular, non-vertical-specific accountants and bookkeepers and realised that most MSP owners, for whom finance is an alien subject, can very easily be led astray by non-knowledgeable accountants and bookkeepers. Bringing those two elements together achieves a level of confidence for both sides.”
MSP Finance Team currently has around 50 clients, ranging in size from £100,000 in annual revenue to £10 million.
“Somewhere between £500,000 and£5 million would be our sweet spot, where the business is of a sufficient size and rate of growth to understand and appreciate the intelligence and insight that we can offer,” says Daniel.
As SLI-certified coaches (Service Leadership Index is an IT solution provider benchmarking programme owned by Connectwise), Daniel and Adam mentor MSPs on how to grow a business and run it more profitably. They have also been involved in 15-plus M&A projects which themselves can be the result of good financial management.
“The whole principle of exit is what drives the mundane behaviour of bookkeeping and management accounts and growing your business. If you look at your business as though you want to sell it, that will inform what you should be doing today and make it better and more attractive. Having knowledge of M&A bears down into what we do with our clients, for example surfacing the fact that they’re making a level of gross margin that is below what a best-in-class business might achieve. The first part is surfacing the problem; the next part is how to make more money. That’s where our mentoring service comes in.”
The bookkeeping and business accounting side of the business is looked after by Director of Finance and Operations Chas Roopra, who started out as a network engineer before retraining as an accountant. Because these services are delivered by an expandable network of accounting experts, this is where MSP Finance Team has most growth potential.
“The mentoring half of the business is restricted by Adam’s and my availability. We have some capacity, but we can’t scale it infinitely, unlike our bookkeeping and management account services, which we can by virtue of a distributed delivery model. Our ambition is to continue to grow our UK client base and open our bookkeeping, management accounts and compliance business to as many MSPs as we can. We have an interest in the international MSP market as well, although compliance accounting across international borders is obviously another challenge.”
New event for 2026
Uniting both parts of the business is MSP Finance Team’s popular BTCC (British Touring Car Championship) MSP Meetup where up to 50 MSP clients can network and share knowledge with their peers and five vendor sponsors while enjoying the action on the track.
The success of this event, which is taking place again on October 9 at Brands Hatch with behind-the-scenes insight from two-time BTCC champion Tom Ingram, has prompted Daniel to add a second flagship motor sport-themed event to this year’s programme – the new Summer Karting MSP Meetup at Daytona Milton Keynes on July 16.
“This is the first time we’ve done a karting event with this format,” he explains. “In 2024, I organised a private karting event for Sophos, and for this new summer event I’m effectively bringing together the structure of the Touring Car event and the activity of that karting event.”
He believes that events such as these meet rising demand for small, peer-led gatherings where the emphasis is very much on entertainment, collaboration and knowledge-sharing.
“One challenge I think MSPs do have as a result of being generally low-profit or loss-making is that they have time limitations on themselves. To commit to time without a client drama interrupting them and getting to an event to unlock knowledge and information is always a challenge. I feel the fun aspects that we build into our events give MSP owners and leaders an additional reason to leave the office or to not go and fix that server that’s just exploded or whatever else is competing for their interest. MSPs that engage with the community often see the value of doing so.
“Had I known about the MSP community 12 years ago, when I was considering my first exit, I may not have exited, because when I found myself working in the acquirer’s business, I realised ‘Oh, actually, I was pretty good at that’, I had a more negative view of my own business and what had been achieved until I saw others. I think there’s a danger within the community of comparing the wrong things, but you can also compare the right things and realise where you are doing well and that gives you the extra energy to push on,” he adds.
Business as usual
So, what advice would Daniel give MSPs at this time when there is so much uncertainty about world events, the price of energy, product shortages, interrupted supply chains and weak demand? How should MSPs prepare for the challenges ahead?
“I would say MSPs should be doing what they should always be doing,because the fundamental business model hasn’t changed and creating a more profitable, sustainable business will give them more financial resilience. This is the time for MSPs to double down and work even harder on improving their business and delivering more value to their clients, which will hopefully then protect their position with those clients.”
He says this should include a focus on client management, the role of the technical account manager and advocating for regular client communications and education, QBRs (quarterly business reviews) and TBRs (technology business reviews).
“Again, business as usual. Because if an MSP focuses on doing that then they’re going to create better relationships with their clients, and their clients are going to see the value of that and buy more from them for longer.”
Be First to Comment