Five Tips To Tame Your MSP Business’ Accounts Receivables
One of the joys of owning a business is the financial freedom it provides, or so the story goes. As most entrepreneurs know, without great customers, proven ways to manage accounts receivable, and procedures to collect in place (and enforced), economic independence is never assured.
The reality is that there are never any guarantees in business. You can have the best-laid plans and a robust financial model and still run into problems that the most insightful entrepreneur would never anticipate. Running an MSP business presents many challenges, including fluctuating workloads and staffing issues, and managing multiple vendor relationships, all while struggling to achieve operational efficiency.
One of the biggest challenges for IT services entrepreneurs is managing the financial side of the organization, which often takes a back seat to the latest tech emergency. When sales are booming, and support staff is onboarding new clients at breakneck speeds, many MSPs feel energized and focus all their efforts on building off that success. The inclination is to keep ‘striking while the metal’s hot’ makes perfect sense ̶ as long as someone is properly managing billing and collections.
Cash flow is key to your MSP’s success
While the natural inclination of managed services business owners is to grow operations with new technical solutions and services to support the IT needs of existing and new clients, you still have to get paid. Without a steady stream of money flowing into your bank account, it can be hard to juggle payroll and checks for rent, electric, gas, and the other expenses that keep the operation running.
Of course, cash flow problems don’t just occur in companies with recurring income issues. Some of the most successful MSPs can find themselves with inadequate financial reserves after months of record sales. Growth often requires capital investments for new offices and equipment and money to hire staff and pay for training and certifications, in addition to providing sales commissions and bonuses.
Those expenditures help explain why expansion is one of the top reasons for MSPs to borrow other people’s money. Without deep financial reserves, many providers rely on lines of credit and bank loans to meet current payroll and expense obligations. That infusion of cash allows MSPs to execute their growth plans while carrying on their day-to-day operations. No sane entrepreneur wants to bounce checks and deal with all the negative repercussions from employees, business partners, and the general public.
The answer to most MSPs’ cash flow issues lies in their collections processes. Many continue to provide the same excellent service month after month while allowing their clients to delay making payments for that support continuously. Improving an MSP’s collections procedures can help put more cash in their bank account that they can use to pay bills or improve and expand their operations. Why pay interest to use other people’s money when you could leverage your own?
Develop an A/R ‘Plan Of Action’
As with any business-related activity, the best way to manage your accounts receivables is to follow a well-designed strategy. Developing a healthy accounts receivables plan doesn’t need to be complicated, and there are many resources and best practices available for virtually every type of business. The managed services space is no different, with a plethora of financial books, podcasts, webinars, and industry experts with great advice for those in charge of finance, especially the collections operation.
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