Managing Cash Flow In A Recurring Revenue Business
If you’ve read part 1 and part 2 in this as-a-service blog series, you’re already familiar with why you’d want to make the transition to recurring revenue business model and ways to best handle the move.
You know managed services can build the recurring revenue stream your business needs for future success. You can see the profitability on the horizon and you’re prepared to go slow and steady getting there.
But what will this reconfiguring do to your cash flow in the process, particularly if it’s already strained?
Conserving cash while creating income is essential when transitioning to managed services. Here are five tips that may help.
1. Slash Expenses
Look at everything you’re spending through a critical eye. From taxes to office supplies to payroll, find places to cut. To tackle this model successfully, you must be lean and efficient.
2. Seek Better Payment Terms
Even if financial strain isn’t overwhelming, talk to your vendors. Many will allow some flexibility, especially if you have an excellent credit history with them. You’ll never know unless you ask.
3. Get Tough About Receivables
Be proactive about invoicing as soon as work is performed, particularly for your break/fix clients. Offer incentives for early payment. Make your team aware that work should not start on a new project for a client who has unpaid invoices.
4. Create the Right Pricing
Be aware that you’re locking in pricing for a long-term agreement, yet be flexible about adjusting your pricing as your as-a-service practice matures. Take the time to review your profitability and break-even point for each client agreement—so you can refine as you go. Don’t be afraid to ask for a first month up-front payment. That extra buffer can help pay for hardware, so it’s not coming out of your pocket.
5. Explore Financing Options
In addition to the obvious routes such as bank loans and credit cards, consider earmarking an up-front payment from a traditional sales opportunity to finance a new managed services deal.
These are just a few tips to help you navigate cash flow issues while transitioning to a managed services business model. For more details and suggestions, download our eBook, Ultimate Guide to As-A-Service. And continue to check out our blog series on growing your success with a recurring-revenue model.