There is a particular Wednesday that a lot of managed service provider owners can date precisely. Payroll runs the following Wednesday, receivables might cover it if two clients pay on time, and somewhere in the inbox is an email from the bank about a line of credit that seemed irrelevant when it arrived. Thirty thousand dollars later payroll clears, and the feeling that follows is relief. That relief is the problem. Borrowing money to make payroll is almost never a timing event, and treating it as one is how a business that still looks fine from the outside spends the next five years quietly getting worse. The signal is not in the cash. It is in the agreement gross profit nobody has examined in a year, in the payroll ratio that drifted while the team grew, and in the habit of reporting revenue rather than profit because revenue is the number that sounds good said out loud.
What makes this hard is not the arithmetic. Every owner in this position can read a profit and loss statement. The difficulty is that the arithmetic arrives as an accusation, and the instinctive response is to look for a route around it rather than through it. A new service line. A new market. A product idea that lifts everything at once. Those instincts are not foolish, and in a business with different economics they would frequently be correct. In a managed services business they are usually a way of postponing a decision about staffing, pricing and owner spending that becomes more expensive every month it waits. What follows is what the borrowing moment is actually telling you, why an MSP carries debt worse than most small businesses of the same size, and the order of operations that resolves it. Spending discipline first, because it is fast and sits entirely inside your control. Gross profit second, because it is slow, and because it is where the business actually lives.
Gary Boyle puts two questions to any owner reaching for a line of credit, and the second one does most of the work. The first is whether the company survives without the money. The second is what the plan is to pay it back. An owner who can name a date inside the next month is describing a genuine timing gap, and a revolving line used that way is cheap, because interest accrues only on the days the balance is out. An owner who cannot name that date is describing something else. The borrowing is not covering a gap between receivables and payroll. It is covering the distance between what the business earns and what it costs to run, and that distance does not close on its own.
This is why the moment deserves more attention than it usually gets. The emotional shape of it works against clear thinking: there is real fear in the days beforehand, then a rush of relief when the money lands, and relief is a poor state in which to diagnose anything. Josh Peterson's advice is to raise your hand fast, to a peer or a consultant or anyone outside the decision, precisely because the person who just solved the immediate problem is the person least able to see what produced it. The comparison he uses is a lump on your knee that you stopped noticing years ago. You are not the right judge of whether it is normal.
Five million dollars is a number that sounds excellent said out loud to a peer, and it is the number owners reach for first. What tends to go unsaid alongside it is the monthly net margin, or the balance sheet with a credit card line that has been climbing for three quarters. Gary calls revenue the vanity metric, and the definition he gives is precise rather than rhetorical: it is the number that matters to exactly one person. Clients are indifferent to it. Employees are indifferent to it. The bank account is indifferent to it. It has the useful property of being large, and almost no diagnostic value.
Gross profit is the number that carries information, and it is the first place to look in almost any situation. It tells you whether the work you are already doing pays for itself before a single overhead decision is made. An MSP sitting at twenty five or thirty percent gross profit has trained itself to believe that thirty percent is what this business returns. It is worth being blunt about what that belief costs, because it quietly rules out every fix that would work and leaves only the ones that will not. The financial statements are already telling this story. The question is whether anyone is reading them as a story rather than as a scoreboard.
The arithmetic here is unforgiving and worth stating plainly. If a business runs at thirty percent gross profit and wants to reach a healthy number, adding revenue at the same thirty percent moves nothing. Correcting the average requires roughly as much new business again, delivered at double the margin, by the same company that has been producing thirty percent for years. Gary's framing is a flower pot. The seeds are frequently good. Every capable owner should have a vision for new lines of business, and the ideas should sound slightly crazy, because that is what vision work is for. The problem is the soil, and the soil is made of overemployment, underpricing, churn, and services that quietly expanded beyond what the agreement covers.
What makes this failure mode so persistent is that it feels like ambition rather than avoidance. Building something new is energizing. Repricing a long-tenured client who pays reliably but pays the wrong amount is not. So the new line gets the attention, and it is delivered by the same team, at the same rates, with the same unexamined overhead, and it arrives carrying the margin profile of everything around it. Josh describes his own version of this, a business running several service lines at once where one line actively prevented another from succeeding. Tomatoes, asparagus and roses in the same pot. There was no version of that arrangement that worked, and no amount of new planting would have fixed it.
Josh has a friend in drywall and interior finishing doing roughly six and a half million dollars in a strong year. One month that business is half a million dollars in debt and selling trucks to make payroll. Four months later the owner buys a property in Costa Rica for cash. That business carries debt extremely well, because a single deal can move half a million dollars of gross profit in three weeks and the timing can be managed by someone skilled at managing it. An MSP has none of those properties. Margins are thin, net new revenue arrives slowly, and there is no deal on the horizon large enough to change the picture inside a quarter. The same debt load that is strategic in one business is corrosive in the other.
There is a second difference that matters more than it appears. When a large company raises debt, it raises corporate debt against a balance sheet. Below roughly seven million dollars in revenue, no bank is lending to a managed services business without a personal guarantee, which means the owner is not borrowing on behalf of the company at all. They are signing personally, then handing the proceeds to an organization where other people hold the authority to spend it: to hire, to buy, to sell services that consume it. Gary's point about Airbnb raising two hundred and fifty million dollars pre-IPO is not a comparison, it is a warning against the comparison. Reading about corporate debt and concluding that debt is normal is how a personal guarantee gets signed on the strength of an argument that does not apply.
Spend one hundred dollars through the business and write it off, and the saving is your tax bracket, so call it thirty five dollars. You still spent sixty five. Gary's arithmetic here is deliberately unglamorous, because the write-off is the single most common rationalization in owner-operated businesses and it survives on never being calculated. The remedy is a spend review: every line of the profit and loss statement, going back a full twelve months so annual and quarterly charges surface alongside monthly ones, answering one question per line. Did the business need this. Not could it be justified, not is it deductible. Did it need it.
The mechanism that makes the review work is doing it with someone else in the room, a CPA or a peer, who takes the opposing position on every item. Not a debate about whether the expense is defensible, but a simple offer: fine, we will move that one to your personal card, and you can decide whether you still want it. Nine times out of ten the answer is to cancel. Everything below the gross profit line is a decision the owner made about how to spend their own money, and very little of it is a requirement. Once that discipline exists, the harder work begins. Gross profit is a multi-month and sometimes multi-year repair, but the two levers are rarely mysterious: the business is usually carrying an extra person or two, and it is usually undercharging because rates have not moved. Both are uncomfortable and both are available. An MSP doing these things should clear ten percent net profit month after month, and Gary's position on falling short is unambiguous. Below ten percent, there is a spending problem, and there is a gross profit problem underneath it.
No, but it is always worth investigating rather than absorbing. A single draw with a repayment date inside thirty days, caused by an identifiable receivables delay, is a timing gap. A draw that cannot be paid back inside a month, or that repeats, is reporting a gap between what the business earns and what it costs to operate. The distinguishing test is the repayment plan, not the amount borrowed.
Less than owners generally assume, because the constraint is margin rather than revenue. A business with thin gross profit and slow net new revenue has little capacity to service a note, and no large deal arriving to change that inside a quarter. Revolving credit card debt is the least suitable instrument, since a twenty to thirty percent revolving rate outpaces what the business can generate. A structured note is more manageable than a revolving balance of the same size.
North of ten percent, month after month, is the working floor discussed in this episode, with seventeen to twenty percent described as the target an owner should be aiming at. Consistent performance below ten percent, or negative net profit, indicates both a spending problem and a gross profit problem rather than a difficult season.
No. A write-off reduces taxable income, so the saving equals the expense multiplied by your marginal rate, commonly around thirty five percent. A one hundred dollar purchase still costs about sixty five dollars in real money. The write-off is a discount, not a rebate, and treating it as a rebate is one of the most reliable sources of discretionary overspending in owner-operated businesses.
It can, when the acquisition itself carries the economics. Debt raised to buy a business that already cash flows, or one with a correctable gross profit problem, can be structured over enough time to work, often through an SBA or private note. Debt raised to build something inside a company that is not yet profitable is a different proposition. An owner already carrying debt without an acquisition is unlikely to be well positioned to take on more for one.
Spending first, for reasons of speed and control rather than importance. Below-the-line expenses are decisions the owner can reverse immediately, without a client conversation or a pricing change, and the review typically returns meaningful margin within a single cycle. Gross profit is where the business actually lives, but repairing it takes months or years and usually requires changes to headcount and rates. Build the spending discipline first, then use the resulting stability to work on gross profit from a position of positive net profit rather than while incurring more debt.
Gary Boyle is a Partner for Strategy & Business Development at Bering McKinley. With a background spanning network engineering, entrepreneurship, and strategic consulting, Gary brings real-world operator experience to helping MSP owners build stronger, more profitable businesses.
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Josh Peterson is the CEO of Bering McKinley and host of The BMK Vision Podcast. Since 2004, Josh has worked with hundreds of MSP owners to build operationally sound, profitable businesses through consulting, peer teams, and direct coaching.
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Most owners in this position do not need another idea. They need someone outside the business to read the same numbers and say plainly what they mean, which is the work the Vision Operating System is built around.