More than 30% of marriages end because of money troubles. Even more concerning, 82% of small businesses fail due to cash flow problems. Cash is critical when it comes to success. It's not everything, but it has a significant impact when there's not enough.
For many MSP owners, the company performance directly impacts the financial situation at home, so it's even more crucial to make sure things are in order.
When it comes to managing cash flow, you should make yourself incredibly familiar with the associated report in your accounting software. Cash flow is so much more than the amount of money currently sitting in your bank account. It represents the cash that has already been committed (by checks written or credit card charges placed), how much is due to come in from accounts receivable, and when it might arrive.
A poorly timed situation or two of more money flowing out than is coming in, and you find yourself financially upside down and likely not sleeping so well. We know; we've been there when we had to swallow our pride and call our closest clients nearly begging for a few months of advance payments so that we could make payroll.
Here are five tactics you can leverage to help get a better handle on cash flow and make sure you float comfortably:
1) Standardize on ACH or credit card payments
Receive all payments electronically via ACH or credit card. This avoids delayed receipt and deposits, and generally mitigates any bank holds on large transactions (particularly helpful with projects)
2) Require contract deposits
When people lease a new office or rent a new living space, it's common to require two months paid upfront. Strangely, this same principle is often not considered for MSP contracts, even though you need to make upfront investments in technology and licensing commitments to deliver. Consider collecting two months upfront when a new client comes on-board, so you have the first month covered and hold the rest to float late payments, defaults, or the last month of the agreement term.
3) Review client profitability quarterly
Start reviewing client profitability quarterly to make sure you've profited on every client contract (including a portion of general office and administration costs). If you have an unprofitable client, address it with them immediately to resolve honestly and candidly. Remember, your clients want you to be happy as much as you want them to be happy. No one wants to be left without coverage and having to find another provider because you couldn't afford to keep servicing them.
4) Review resale profitability monthly
Reviewing your resale profitability monthly can help ensure you've profited on every product offering after considering hard and soft costs (licensing, procurement, tech support, and administration). Double down on the most profitable ones to drive client adoption, and address the unprofitable ones immediately.
5) Consider alternative avenues
Increase available funds by avenues like an operating line of credit, MRR based receivable loan, or even consider selling a portion of the company to key staff. These additional capital sources allow more breathing room and in the one case, can have your staff better invested in the business's success.
As you can see there are a number of options when it comes to managing cash flow. About the only thing you shouldn’t do, is nothing.