Cash (flow) is King

By Robert Abboud | December 1, 2009 | Last updated on December 1, 2009
6 min read

Managing client cash flow is an overlooked yet crucial part of financial planning that can help you drastically increase your practice’s revenues.

A recent National Payroll Week Employee Survey suggests that over 59% of Canadian employees would have trouble making ends meet if their paycheque was delayed by even one week.

Talk about improper planning, eh? How can this possibly be? Well, we as an industry don’t seem to do a very good job of helping people with the day- to-day cash flow — help they desperately need. Maybe, as planners, we are hesitant to dig deep into a client’s personal affairs and ask questions about budgeting or cash flow because we feel we would be an intrusion into their personal affairs. Or maybe it’s because we cannot see the value this would add to the client or to us.

Our firm has been doing cash flow planning for over 10 years and I thought I would share some of the benefits we have seen for both the client and our business revenue.

Cash flow is the heart of the financial plan

If a financial plan was a body, cash flow would be the heart. It determines how much money (blood flow) is pumped to which goal (organ). If you don’t have a healthy heart, the rest of your organs and vital functions will suffer. Sometimes, the harmful effects aren’t seen immediately, but show up as we age. The same applies to how cash flow affects a client’s finances.

Without knowing a client’s cash flow situation, how can we suggest that they save $1,100/month towards retirement, pay $350/month in life and critical illness insurance premiums or any amount at all? For every plan that we create, we should ask simple monthly cash flow questions and create a cash flow maximization sheet. This is where we piece the whole plan together, including the goals the client has said they would like to achieve. Cash flow analysis allows us to determine if they can afford to achieve many of the goals they have in mind.

Clients need help with cash flow

Country singer Marty Stuart doesn’t know how right he was when he sang “There’s too much month at the end of the money.” One of the biggest challenges clients have is managing their cash flow. Cash flow is not an income problem. In my experience, the clients with the most trouble doing this are those who make over $150,000 a year. Every time we bring up cash flow with clients, they often look a little uncomfortable at first. They seem concerned that we will put them on a budget.

Our role is to help them make the most of their income so they can achieve all of the goals they have told us they wish to accomplish. Once we do a simple monthly cash flow plan with them — and explain that many of our existing clients feel much more in control and happier once they begin our cash flow recommendations — new clients jump onboard. We have actually had some clients tell us that since structuring their cash flow, they have had fewer arguments concerning their money and are able to spend more on things that have real meaning to them.

Clients need a cash flow system that works

Over the years many new clients have proudly brought us their budgets and some were extensively detailed. But, keeping receipts and systematically entering every single purchase into a personal finance program on a home computer doesn’t work for 99% of people. Usually, the system breaks down after only a few months when people stop being so diligent.

For a cash flow system to work, it has to be simple and forward-looking. We break down expenses into three categories for clients. The first category is for automatic expenses such as mortgage and car payments. These expenses are withdrawn from their bank account automatically after each paycheque so the client doesn’t have a chance to spend the money.

The second category is for infrequent expenses such as travel and property taxes. These “surprise” expenses, which aren’t really surprises since we know they’re coming up, are the ones clients forget to plan for and they’re the expenses that end up throwing off most budgets. Here’s how we plan for them. We estimate the annual cost of these expenses and then divide by 12. Then, after each paycheque, half that amount is automatically transferred to a high-interest savings account before they have a chance to spend the money. For example, if each year a client spends $4,800 on travel and $3,600 property taxes, every two weeks $350 is automatically transferred to their high-interest savings account. That way, when they take that trip next year or pay their property taxes in 3 months, the money is there when they need it.

Everything else — clothing, groceries, entertainment etc. — is paid for with the remaining cash in the client’s bank account — not the charge card. Most clients use the envelope system to divvy the money while others can manage their expenses without.

This cash flow system is simple, but it works. We offer clients the high-interest savings account through one of our banking partners and some clients now do their daily banking through these partners, so these become additional income streams for our practice.

Cash flow planning shows clients they can afford to implement our recommendations

We have found that when you use cash flow planning, a client can then see exactly how they will be able to save for their goals and needs. As a result, they are now more willing to go ahead and implement our suggestions. I can only imagine that if we just tell clients “You need to save $1,200/month for retirement, pay $400/month of insurance premiums and set aside $500/month for goals,” they just might run out of the office screaming or simply have an anxiety attack right in front of us.

However, when we present the financial plan to clients, as we go through each item that needs to be addressed and has a cost associated, they often say “I agree…but we can’t afford this.” We advise them that everything in the plan is accommodated for in their cash flow plan and that they can afford all of the recommendations we have made. As a result, the recommendations get implemented and we are compensated.

Cash flow makes for a much better plan

Without cash flow planning it can be very difficult to structure any form of planning, including retirement, insurance, goals, and education. Without cash flow planning, we would simply be telling clients to save “X” dollars without knowing if they can. Clients who have gone through this cash flow exercise have come out of it feeling in control and we have solidified our relationship with them.

Let’s revisit the medical comparison. Imagine if you went to your doctor and she advised you that you had high cholesterol. Her treatment was for you to lose 20 pounds over the next 6 months through exercise and diet. That was it. No plan on how to lose the weight or what would constitute a proper diet. She made the assumption that you could just do it.

Maybe some of us could, but her recommendations would certainly have a higher success rate if she took the time to ask about your current lifestyle and then developed a personalized workout routine and diet that fit your life and schedule. You would leave the doctor’s office with a realistic and implementable plan to help keep your heart in great shape. We should help our clients keep the heart of their plan in great shape as well.

Robert Abboud, CFP, PFP, is the co-founder of, which offers advisors practical solutions to help transition to a financial planning practice and offers a 12 week training program. He is also the author of ‘No Regrets, A Common Sense Guide to Achieving and Affording Your Life Goals’. He has been offering life goals financial plans for over 15 years through his firm Wealth Strategies. Robert is available to speak at conferences and educational days. You can contact him at

Robert Abboud