Guide
4 min read
By MSP Margin Editorial
An income statement tells you whether you made money last month. It does not tell you whether you can make payroll in six weeks. MSPs can be profitable and still run short of cash, because payroll runs every two weeks, distributors want payment on their terms, annual tool renewals land all at once, and client payments arrive whenever clients get to them.
A 13-week cash forecast covers roughly one quarter, week by week. It is long enough to see a crunch coming and short enough to forecast with real dates rather than averages.
Set up the structure
Use a spreadsheet with one column per week and rows grouped into receipts, disbursements and balances. Start every forecast from the actual bank balance on the first day.
For each week:
- Opening cash, which is last week's closing cash.
- Receipts, broken out by source.
- Disbursements, broken out by type.
- Closing cash: opening plus receipts minus disbursements.
Add a row for a minimum cash level you do not want to go below. Weeks where closing cash falls under it are the ones to act on.
Receipts by billing cycle
Forecast receipts from invoices, not from revenue. For MSPs, most cash comes from recurring invoices, and their timing depends on when you bill and how your clients pay.
- Recurring agreements. If you bill on the first of the month with 30-day terms, the bulk of that cash arrives around weeks four and five of the cycle, not week one. Use your own history: look at when recurring invoices actually got paid over the past few months and spread receipts the same way.
- Clients on autopay. These are the most predictable. Put them in the week the payment runs.
- Projects and one-time work. Include only what has been invoiced or is contractually scheduled to be. Put large items in the week you realistically expect them, not the due date.
- Slow payers. If certain clients are reliably late, forecast them late.
Leave out anything you are hoping for but have not billed. The forecast is useful because it is conservative.
Disbursements and timing
Payroll is usually the largest and most fixed outflow. Map each pay date, and include employer payroll taxes and benefits in the weeks they are paid.
Vendors come next. Distributor and licensing bills often follow their own monthly cycle, so put them on the week they are due. Rent, insurance and loan payments go on their dates.
Annual prepaid tools need special attention. A security or backup platform billed annually can be a large single payment that the monthly income statement spreads across twelve months. In cash terms it all leaves at once. List every annual renewal with its date and amount, and put the full payment in the right week.
Include owner draws or distributions, estimated tax payments and any planned purchases such as equipment. These are often left out and are exactly what causes surprises.
A worked example
These numbers are illustrative. An MSP starts week 7 of its forecast with $180,000. That week:
- Receipts: $15,000, mostly from a few late recurring payments and one project invoice
- Payroll and related taxes: $45,000
- Annual renewal for a security platform: $36,000
- Rent, utilities and smaller vendors: $10,000
Closing cash for week 7 is $180,000 + $15,000 − $45,000 − $36,000 − $10,000 = $104,000.
If the minimum cash level is $100,000 and week 8 has another payroll before the next recurring cycle starts paying, the forecast shows a squeeze two weeks out. Options include asking the vendor about payment timing, following up on overdue receivables now, or moving a planned purchase out a few weeks. All of those are easier to arrange two weeks ahead than two days ahead.
Update it every week
The forecast only works if it rolls forward. Pick a day each week and follow the same routine.
- Replace the past week's forecast with actuals from the bank.
- Compare the two. Note large differences and why they happened.
- Drop the completed week and add a new week 13.
- Update receipts from the current AR aging and any new invoices.
- Add any new commitments: hires, renewals, purchases.
The variance review in step 2 is what makes the forecast better over time. If client receipts keep coming in later than forecast, change your collection timing assumptions. If disbursements keep beating the forecast, you are missing a category.
Keep the forecast simple enough that the routine takes well under an hour. A forecast that is accurate and updated weekly is worth more than a detailed one that goes stale.
This is general information about cash planning, not financial or tax advice. Tax payment timing and payroll obligations depend on your entity and state, so build those parts of the forecast with your accountant.