3 Ways To Ease Managed Services Cash Flow Challenges
By Mike Monocello, editor-in-chief, Business Solutions magazine
I've been pretty vocal lately about transitioning your business to a recurring revenue model. By far, the most common objection I hear has to do with the financial strain a company can feel when migrating away from the lump sums associated with the old break-fix model. Here are a few tips concerning this transition that might cushion the cash flow blow:
1.) Take it as slow as you need to -- The goal is to increase the amount of recurring revenue you bank each month. Maybe you start by trying to convert one customer per month or a certain amount of hardware. You should be able to determine how much hardware/software/services you can afford to convert on a monthly basis without putting you in a bad cash position.
2.) Build a litle cushion into your managed services billing -- some MSPs advise charging a setup fee and charging for the first month in advance. This can help soften the blow and close the gap between break-fix income and the MSP model.
3.) Seek better payment terms with vendors/distributors -- you won't know unless you ask. Perhaps you can get one additional month out of your vendors, which could add even more cushion to the potential financial strain. Combine this with tip #2 and you might be able to accumulate a few month's worth of revenue before you even have to pay your vendors.