Profitable but No Cash Flow: An MSP Cash Forecast

Profit Has a Different Clock

Profit records what the business earns after its expenses on the accounting basis you use. A cash forecast records when money becomes available and when payments leave. An earned fee can appear in the accounts before its payment clears, so a profitable month doesn't establish that next week's bills are funded.

EBITDA means earnings before interest, taxes, depreciation, and amortization. The MSP model targets a 20% EBITDA margin after a fair-market owner salary. That target measures earnings; it doesn't establish cash available for an owner distribution.

Keep the profit report beside the bank forecast. If a payment changes cash without appearing as an operating expense in the same period, it still belongs in the forecast. Your accountant can identify those differences in your records; the bank will not wait for the profit report to catch up.

Give the Example MSP Actual Payment Dates

Say you run the model's US example MSP, with 700 seats and $3,634,615 in annual revenue. Its stable setting carries $1,362,919 of burdened annual people costs. Those figures describe scale, but neither tells you the amount leaving on a particular payroll date.

Build the payment schedule from payroll records, including the employer payments that settle separately. The model's general US burden multiplier is 1.25 times salary, with a separate treatment for the owner. Burden is a costing allowance, not a substitute for dated bank transactions.

The example also has $690,577 of annual hardware revenue at a 30% product margin. If a distributor requires payment before a client pays for an order, that order uses cash while it waits to be collected. Enter the purchase payment and the expected client receipt separately; annual hardware profit cannot show the gap between them.

Build a Forecast You Can Reconcile

Start with cash available at a recorded date, after reconciling transactions still clearing and separating funds reserved for another purpose. Opening cash plus receipts less payments gives closing cash. Carry that balance forward, then check the actual dates around any tight point.

1. Enter each expected client receipt against its invoice, with the expected clearing date and the evidence behind that date. Keep a disputed or unconfirmed receipt visibly uncertain.
2. Enter scheduled payroll and supplier payments from their underlying records. Add other committed payments on the dates they are expected to leave.
3. Include tax payments, debt service, equipment purchases, and owner distributions where they apply. Reconcile them with the profit report so a payment isn't omitted merely because EBITDA excludes it.
4. Calculate the running balance and identify the lowest point. If weekly totals hide a payment that clears before a receipt, inspect that part of the forecast by day.
5. Replace forecasts with bank actuals as each period closes. Explain differences, assign someone to obtain missing dates, and extend the schedule to keep future commitments visible.

Don't subtract a scheduled bill from opening cash and then include it again as a future payment. The same discipline applies to people costs. When an engineer's onboarding work is covered by forecast payroll, an imputed labor charge is not another cash payment.

Put Growth Spending on Its Own Dates

The model assigns $25,000 of acquisition cost per new managed client. That is sales and marketing spending divided by wins, rather than a bill issued when a contract is signed. Forecast the sales payroll and program payments that create that cost, even if a hoped-for client has not signed.

The model also budgets $5,000 per hire. Use the actual recruiting commitments and payroll start date for a hiring decision, and reconcile the allowance against those entries. Treating the planning figure as an additional invoice can count the same cash use twice.

For a new contract, align the first realistic receipt with the payments needed to deliver the work. An agreement can add future revenue while requiring cash now. The decision is whether the forecast can carry that interval, including the possibility that the first payment arrives later than expected.

Move a Receipt and Watch the Balance

Keep the forecast you expect to happen, then make a separate copy for stress testing. Move a receipt that matters to a later date using a delay supported by payment history or a specific unresolved issue. Record the reason so someone else can challenge the assumption.

For the example MSP, the hardware order is a useful place to start. Leave the distributor's confirmed payment date intact and move the client's expected receipt. Recalculate the running balance to see whether payroll remains funded while the order waits to be paid.

Combine exposures only where they could plausibly coincide. If you model a lost client, remove costs only when you could actually stop paying them. A contract ending doesn't make committed supplier payments or staff payroll disappear on the same date.

Set the Reserve From the Gap

Choose the minimum available cash needed to keep operating while you respond to the risks you've identified. Compare it with the lowest stressed balance. Where the projected balance falls below that minimum, the difference identifies funding to arrange or payments to change.

My preference is a written reserve decision with the assumptions attached. Explain which obligations must continue and how long a response would take. A general rule expressed in months of payroll cannot capture a hardware order whose supplier bill lands before its client receipt.

Scheduled costs already belong in the forecast. Any extra cushion needs a separate reason, such as uncertain receipts or a commitment beyond the current view. That distinction keeps the reserve from quietly counting payroll twice.

Attach an Action to the Shortfall

Name who will close each gap and by what date. An agreed hardware deposit can move a receipt earlier; a confirmed supplier extension can move a payment later. Enter the change after it is agreed, and keep an unconfirmed request in the risk case.

If financing is required, distinguish confirmed funds available under agreed conditions from an application still being considered. Keep repayment dates in the forecast. Moving a shortfall into a later period gives you another obligation to fund.

I'd preserve the monthly recurring fee when negotiating a concession, consistent with the model's pricing position. A permanent fee reduction changes future earnings as well as the immediate cash arrangement. Evaluate both effects before accepting it.

If the balance keeps falling despite corrected payment timing, examine operating performance and owner withdrawals. The model's 10% EBITDA danger line warrants attention, but it is not a cash break-even calculation. Start with the next payment your forecast cannot cover and document the confirmed action that will fund it.