Cash Flow Management Tips for MSP Business
Cash flow is the quintessence of any business, and the same holds true for your MSP as well. That’s where learning cash flow management comes into play.
Cash flow management is tracking, monitoring, optimizing and controlling how much money comes in and out of a business to predict cash flow requirements correctly. It's all about handling your business finances sensibly so there's enough cash to grow.
If done right, it provides a clear picture of cost versus revenue. It ensures your business has adequate funds to pay your bills, debt, payroll, and vendor invoices while making a profit.
By understanding your business's cash flow, you'll be able to forecast profits accurately and identify investment opportunities. This is why cash flow management is vital for businesses, and the same holds true for MSPs.
In this post, we will explore how MSPs can achieve cash flow management, including strategies, issues, and automation.
Cash Flow Management Tips and Best Practices for MSPs
As a managed service business owner, your top priority should be providing excellent service to your clients. And the next to follow should be cash flow management that addresses the health of your business's cash flow.
Effective cash flow management helps MSPs provide the level of service that their clients expect and invest correctly into their business to ensure development and expansion.
Here are six ways to manage and improve your cash flow:
1. Implement MSP Automation
Ideally, you would want to ensure that your business experiences positive cash flow and recurring revenue at all times. However, you cannot accomplish this if you are spending more money than you are collecting.
Most MSPs bill clients regularly, which is good as it gives a continual and expectable cash flow. However, getting each client to pay on time for every billing period can be a difficult task without suitable systems, policies, and management.
To avoid this, you can implement automation for an automated collection system where invoices are sent on an ongoing basis to clients through accounting software. You can also set clients up on pre-authorized debits using tools wherein the payment is withdrawn automatically from the client's bank account on a scheduled date. This decreases the amount of time between client payments, improving your cash flow. The simpler you make it for your clients to pay, the better your cash flow will be.
MSPs have tools such as the PSA platform and accounting software, which create a smooth invoice-to-payment collections system when connected to a secure payment portal. To make things easier, you can use a payment platform built for MSPs, which will help you save money by automating your billing and collection tasks that are integrated with the tools you already use.
2. Renew Legacy Client Contracts
When you first started your MSP business, there may be many early customers for whom you might have charged a reduced price. But despite the growth of your MSP business, you let those old customers hang onto their legacy contracts for far too long out of gratitude or respect for personal relationships. But these legacy contracts may eat away at your margins, and your company's profit margin may decrease.
Contracts have to be renewed frequently to ensure margins at your current operating costs. And for this, you should be able to renegotiate these legacy contracts and charge your current going rate.
In order to overcome the limitations of legacy contracts, you need to evaluate and update existing agreements to align them with current industry practices, technological developments, and legal requirements. You have to adapt to the dynamic business landscape and implement appropriate strategies to upgrade your contractual procedures. Or you could just streamline your existing contracts with a CLM platform and save your time and money!
3. Review Your Expenses
One of the most essential things to do when increasing your cash flow is to audit your expenses thoroughly. This means reviewing every payment you make each month, what it is for, and figuring out whether it is genuinely essential or not.
Having detailed information about your expenses helps you make long-term decisions. MSP business owners can improve the business's cash flow by understanding where the money is spent.
Either you are paying for unnecessary software subscriptions or additional licenses you don't require. You may also be paying for some consumer licenses that are being billed improperly or not being billed at all. Your key priority should be to cut down on all unnecessary expenses that decrease the cash flowing out of your business.
4. Renegotiate Your Vendor Contracts
While reviewing your expenses, you should also consider renegotiating your vendor contracts. An MSP business owner carries contracts with numerous technology vendors for tools that are used internally, as well as reseller services.
You can review these contracts before their renewal and negotiate if you can get better pricing to reduce your costs and increase your margins. You can also look around for those services to check if other vendors will likely provide better pricing.
In this competitive platform, you'll always find someone ready to give you a better deal for your business. Then, it's up to you whether you feel the product best aligns with your requirements or not.
Adding the renewal dates on your calendar for all of your services to receive alerts a few weeks before every renewal of your services.
You can ask your account manager for a better deal or renegotiate with the contractor before the contract renewal. This will help you lower your expenses and increase your cash flow.
5. Eliminate Bad Customers
Some of your customers may be known for late payments, over-utilize your services, may request for out-of-scope work, or some are just a misfit for your business. Such over-the-top clients may eat up your profits because they waste your team's time more than what is allotted to them.
Every MSP has some clients that they wished they never had. Don't let these clients stick around because it gets more challenging to get rid of them. Instead, it would be best if you considered dropping them, as this will allow you to work with the clients that are a better fit for your business.
6. Outsource Non-Core Tasks
One of the significant expenses in a business is payroll, and employing in-house employees comes with numerous added costs, such as training, benefits, vacation pay, and much more. However, you can lower your expenses by outsourcing non-core tasks such as payroll, bookkeeping, marketing, help desk assistance, etc.
Outsourcing helps your business by saving a significant amount of time and money, giving you time to emphasize on the more vital tasks of your business. By outsourcing your bookkeeping, you can ensure that you always have continual access to the most recent financial data at all times. This allows you to make sound financial decisions for your business and ensures that your managed services business stays focused on providing excellent service.
Tracking and monitoring your cash flow should be the top priority for your MSP business. As a business owner, being aware of your business's cash flow will ensure you have sufficient resources to cover your expenses, manage the day-to-day operational costs, and grow your business.
Receiving timely payments for your business offerings is not an irrational expectation, nor should it be challenging for MSPs to overcome. And manually managing cash flow can be prone to errors resulting in losses. However, with the right platform and tools, an MSP business can boost its financial freedom and strengthen its cash flow to pay the bills and fund organic growth.
If you are seeking more ways to manage and improve your cash flow efficiently, Zomentum is here to help. It is an all-in-one payment platform built for MSPs to save money by:
- Automating your billing and collection tasks
- Integrates with the tools you already use
- Up to 4 times faster payment collection
- No platform fees and transparent payment processing fees
- Setup fall back collection methods, so you receive your money on time
Schedule a demo to see how Zomentum can help your MSP automate its cash flow.