Six Ways to Improve Cash Flow For Your Managed Services Business

Omar Visram
Six Ways to Improve Cash Flow For Your Managed Services Business
Table of Contents

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As a managed service business owner, your number one priority should be to provide the best possible service to your clients. Your second priority should be addressing the health of your business's cash flow. 

Cash flow is the lifeblood of a company, and it will allow you to ensure you can afford to give your clients the level of service they expect and that you can invest appropriately into your business. By improving your cash flow, you will always be able to cover all of your expenses, pay your wages and ensure that your business has all of the funds required to continue growing and expanding.

1. Automate your collections

Ideally, you want to ensure your business is in a favorable cash flow situation at all times. However, you can't achieve this if you are spending more money than you are collecting. Most Managed Services businesses bill clients regularly, which is good because it gives you a constant and predictable cash flow. If you don't invoice your clients on time or they pay late, this could affect your cash flow.

To avoid this, you can automatically send invoices on an ongoing basis to clients through accounting software like QuickBooks Online or Xero. You can also set clients up on pre-authorized debits using tools like Rotessa. Once a contract begins, payments are automatically withdrawn from the client’s bank account on a predetermined date. This decreases the amount of time between client payments, improving your cash flow.

2. Renew legacy client contracts

When you first start your MSP business, you might have charged your early customers a reduced price. As your business grows, these legacy contracts may be eating away at your margins

You need to renew these legacy contracts to guarantee margins at your current operating costs. You should renegotiate these contracts and charge your current going rate.

3. Stop working with bad clients

Some of your clients may be notorious for late payments, regularly make requests for out-of-scope work, or are simply just a bad fit for your business. These clients might eat up your profits as they take up more of your team's time than what is allocated. 

Instead of hanging on to these clients, you should consider dropping them. This will give you the time to work with clients that are a better fit for your company.

4. Review your expenses

One of the critical things to do when improving your cash flow is to have a complete audit of your expenses. Review every payment you make each month, determine what it is for and whether or not it is necessary. 

You may be paying for subscriptions for software or additional licenses that you don't actually need. Your main priority should be to reduce all unnecessary expenses to reduce the cash flowing out of your business.

5. Renegotiate your vendor contracts

While you are reviewing your expenses, you may also want to consider renegotiating your vendor contracts. MSPs carry contracts with various technology vendors for tools that are used internally as well as reseller services. 

You want to review these contracts before they renew and reach out to see if you can get better pricing to lower your costs and boost up your margins. Alternatively, you can also shop around for those services to see whether other vendors can provide better pricing.

6. Outsource non-core tasks

Payroll is a major expense, and hiring in-house employees comes with several additional costs such as benefits, vacation pay, training, and more. You can reduce your expenses by outsourcing non-core tasks like bookkeeping, payroll, help desk assistance, and marketing, to name a few.

Outsourcing helps to save your business a significant amount of time and money, freeing you up to focus on the more essential tasks of your business. When you outsource your bookkeeping, you ensure that you always have access to the most current financial information at all times, giving you the ability to make sound financial decisions for your business.

Monitoring your cash flow situation should be one of your MSP business’s main priorities. Being aware of the cash that flows in and out of your business will go a long way towards ensuring you have sufficient resources to cover your expenses and manage the day-to-day costs associated with your operation.

If you are seeking more ways to manage your cash flow or would like to minimize your expenses by taking advantage of outsourcing, Enkel is here to help. We can assist you with all of your bookkeeping and payroll needs and can ensure that your managed services firm stays focused on delivering excellent service. For more information on how we can help, contact us today.

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