When talking about the health of businesses, many people often speak in terms of the profitability of a company.  That causes us to discuss issues such as margin, expenses and revenue.  There is no doubt that profitability is an important measure of any company's success.  Without profits, no company can sustain.  The ultimate goal of any company is to maximize the wealth of shareholders and key means for doing that over the long haul is to maximize corporate profitability.

But it turns out that more often than not, companies go out of business for a different reason: cash flow, or lack thereof.  This is particularly true with smaller companies, but can also be true with large enterprises too.  Countless times a profitable company has closed its doors because they did not have the flow of cash needed to sustain operations. 

This is a very important lesson for IT vendors.  Generally, IT vendors are larger companies that don't have cash strapped environments.  These large IT vendors focus heavily on profitability and just assume simple things like paychecks will be there.  This assumption is based on experience.  Most of the time large IT vendors are able to secure loans, tap into relatively significant cash reserves and accelerate AR to ensure cash is available to pay short term bills.

That is not always the case with many channel orgaizations though.  Often the single biggest financial trouble faced by a reseller is cash flow.  Resellers have to make significant investements to be in a place to sell the products and services of IT vendors.  They pay sales and support people for months before those team members start to generate enough sales and revenue to pay for themselves.  Then it can take a long time for the customer to pay for the services they receive.  Long story short, it can be many months of investment that a reseller has to make before seeing cash back in the bank account.  In the meantime, everyone expects to be paid, including the IT vendor and the employees.

In those situations, very profitable deals can actually cause cash flow to slow down.  Sometimes resellers will settle for less profitable deals just to get money in the door.  Cash is king!  This can put the needs of the IT vendor and the reseller at odds.

The best solution is for an IT Vendor and its channel managers to simply be aware of the issues.  Channel managers that understand the importance of cash flow can work with partners to find ideal solultions that often don't include the kinds of responses that one might otherwise assume.  For instance, loans and delayed payments may be the key to success much more so than discounts on products.  My advice to channel managers is learn about the financial needs of your partners.  Don't assume that their financial needs are the same as yours.

William Vanderbilt

+1 630 343 6261

WVanderbilt@InnovativeLearningChannels.com