When Recurring Revenue Isn't Enough: A Cash Reality for MSPs
Recurring revenue brings predictability. It sits at the core of most MSPs. It supports consistent billing, recurring clients, and a more stable foundation to operate from. For many, cash still feels tight even with a profitable recurring revenue model. This isn’t a failure. In many cases, it’s the opposite… the business has outgrown the financial framework that worked at an earlier stage and is ready for a more intentional approach.
MRR and Cash Flow Follow Different Schedules
MRR shows what the business earns over time. Cash tells you whether the business can fund payroll and other obligations as they come due. The two are related, but they move on different timelines.
Clients are billed monthly. Payroll hits multiple times during the month. Vendors, tools, and software are often paid before revenue has fully settled. That timing gap is what puts pressure on cash.
Growth Changes the Cash Dynamic
As the business grows, cash dynamics change: Increasing costs are incurred before revenue is collected. Software, systems, third-party services, and operating expenses are often paid upfront or early in the cycle.
From an accounting perspective, these costs are recognized over time. From a cash perspective, the outflow is immediate. As revenue grows, these upfront costs tend to grow with it, often ahead of collections. The result is a business that looks profitable on paper while cash feels increasingly constrained. Growth increases activity, spend, and complexity faster than cash stabilizes, especially in recurring revenue models.
Labor Pressure Builds Quietly
Labor is often the largest expense in service-based businesses, and it rarely moves in clean alignment with revenue. Staffing decisions are made to meet client needs and service expectations, not to perfectly match cash inflows.
Over time, small inefficiencies add up. Certain clients require more support than anticipated. Senior team members spend time on work that does not match their level. Pricing does not always keep pace with effort.
These pressures do not always show up immediately in profitability. They show up first in cash, as payroll absorbs the strain before it becomes obvious in the financials.
Strong recurring revenue is a solid foundation, but it isn’t the full picture. As businesses grow, cash dynamics become more complex and require clearer financial visibility to support them.
Through Aspen Ledger, I work with owners to bring clarity to how revenue, costs, and cash interact so growth feels intentional, not strained.