Senior Strategic Guide Profit First Professionals
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The Importance of a Cash Flow Management Plan

Mar 1st 2018
Senior Strategic Guide Profit First Professionals
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people in business planning meeting

As accountants and bookkeepers, we have intimate knowledge of the challenges our clients face around their cash flow.

To emphasize this point, a study by US Bank found that 82% of businesses fail due to cash flow mismanagement. Most of our clients realize they need cash management help.

Many specifically request this service when they begin working with us. As is the case with many of our advisory attempts, though, there often seems to be a breakdown in communication when it comes to the practical implementation of a cash management plan.

Chances are this has happened to you: You’ve spent hours working on a cash flow projection for your client. The meeting to discuss the projection went really well. Your client was excited about finally not having to worry about their cash position and you both left the meeting feeling positive about the changes your client was going to make.

Then, three months later when you reviewed their books for your quarterly meeting, you discovered they had not followed the plan you outlined at all. What went wrong? How did your client go from being excited about the positive impact the plan was going to make on their business to not doing anything at all to implement it?

Cash Management Plans Must be Intuitive

In order for our clients to understand and follow through with a cash management plan, the plan must be intuitive. While projections and spreadsheets seem intuitive to us, most small business owners won’t take the time to consult these reports prior to making spending decisions.

How, then, do we develop an intuitive cash management plan our clients will actually use?

Successful cash management is largely based on habit. A habit many small business owners share is checking their bank account balance daily. In fact, you probably do this, too.

Though most accountants and bookkeepers are only checking their bank account balances daily to make sure no untoward activity has occurred, many small business owners check theirs as a precursor to making spending decisions. This habit makes it easy for them to forget other upcoming financial obligations like payroll or an estimated tax payment that is coming due.

We can, however, help our clients leverage this habit of checking their bank account balance daily and form it into a cash management plan. Because we are working with a habit our clients already have, it is intuitive and easy for them to embrace, meaning they are more likely to stick with it.

Multiple Bank Accounts for Cash Flow Simplicity

When a client keeps all of their business cash in one bank account, it’s extremely difficult for them to visualize how that money relates to their budget and upcoming obligations. Ideally, they would consult their cash flow forecast and update it prior to making spending decisions, but most small business owners won’t do this.

If, however, we set up separate bank accounts for different purposes based on the client’s cash flow forecast, the picture becomes much clearer for them. This is very similar to the envelope system of budgeting used by our grandparents and recently re-popularized for debt eradication. We are simply replacing envelopes with bank accounts.

Like using envelopes for household cash management, separating business funds into separate accounts helps prevent overspending and keeps our clients on target with their cash management plan and budget goals. They can assess their cash position at a glance just by logging into their online banking.

Having more than one or two bank accounts might seem like an accounting nightmare, but if structured correctly the bulk of a business’ transactions still occur in only one or two bank accounts. The remaining accounts become “holding” accounts to remove the cash from consideration until it is time to use it for its intended purpose. This means any additional accounting or bookkeeping work required to maintain the system is minimal.

As accountants, running a business based on bank account balances seems irresponsible at best. However, an envelope-type cash management method works very well for small business owners, because they intuitively understand it. They can quickly and easily see positive results, and this is exciting for them.

Why Does This Work Better Than Spreadsheets?

Remembering to review a budget daily is a habit a small business owner has to acquire, but an envelope-type system of cash management leverages a habit your clients already have. Money is allocated into different accounts for specific purposes, and no calculations are required on your clients’ part to determine how much money they really have available.

A common objection accountants have to such a system is, “Wouldn’t it be better to teach my clients how to read and understand their financial statements and cash flow projections?”

The simple answer is, yes, it would be better. However, I have found that most small business owners simply do not have the time to analyze these reports on a regular basis.

If they do analyze and understand these reports, they don’t internalize the information to the point where they use it prior to making business decisions. Even larger businesses I have worked with have said having money sheltered in separate accounts helps them think twice about expenditures they once would have approved on a whim.

How You Can Use This System With Your Clients

An envelope-type cash management system is easy to implement. Chances are, you have already partially implemented one without realizing it. If you encourage your clients to transfer a percentage of their income into a savings account to ensure they can pay their taxes, you are already using this system to an extent.


Proper cash management is critical to your clients’ success. While the traditional methods of cash management may seem intuitive to us, they can be overwhelming to many small business owners. Implement an intuitive cash management plan and help your clients comply with it. Once your clients see the benefits, with minimal effort on their part, you will be one step closer to becoming their favorite trusted advisor.

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By Hannah Sanchez
Mar 7th 2018 13:06

Small businesses ownerswill encountermany challenges on the road to success, and cash flow management is one of them. Managing finances can get confusing, that’s why I have entrustedthis aspect of my business to the accountant I hired from Dua & Co. An open channel of communication between the client and the accountant can solve many issues. Thank you Billie for so explaining it well.

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