How Can Effective Cash Flow Management Transform Your Business?

The Modern CPA Success Show: Episode 134

In this episode of the Modern CPA Success Show, hosts Tom and Adam discuss their firm's cash flow management service. They highlight the critical role of cash flow in business health, distinguishing it from financial forecasting. Their service includes a 13-week cash flow forecast, regular cash flow meetings, and detailed tracking of accounts receivable and payable. Emphasis is placed on the importance of reconciling bank accounts, maintaining communication, and ensuring accountability. The episode underscores how these practices help business owners stay informed, manage expenses, and make proactive financial decisions.

Tom: All right, another little snippet for modern CPA success. So Adam and I are going to talk about our cash flow is a service to Adam. I'll start with this question. When a client gets and when they subscribe for our cash flow service, what do they get?

Adam: Real quick, just to pan out, I want to make the distinction, like all of our clients, you know, we know cash is king. It's the oxygen of the business. Without it, we suffocate. Right. So cash is very important. but and we do this with our financial forecasting. But there's a difference between month in planning and long term strategic planning with cash. And then our cash flow service, which is more of like a cash flow management service.

Adam: It's more of the blocking and tackling. So think about financial, cash flow in the cash accounts in terms of chart of accounts. And then whenever we move to the cash flow management service, we're getting really granular. And it's more of a 13 week cash burn. So we're generally speaking about all the R. So like we can see the details. Who owes me money how old it is. Like Tom, why hasn't this person paid you in 60 days or are you making phone calls? What's going on? I can also see all the ashes are coming out. Payroll is going to hit next week, that kind of thing. And then I can kind of move down and see. These are all the bills that we need to pay. oh. We don't have cash because that one person hasn't paid us yet and payrolls coming out next week. So I would hold these bills and at the very end I can see my ending cash balance. and so what's really important is before you have this conversation, you have to reconcile the bank account.

Tom: Right.

Adam: So that's that's point one. Don't grab the balance, cancel the bank account that goes on top at the bottom. Now I've been able to play. Play out the cash. So technically, whenever I'm doing this, I'm really focusing on the next 2 to 4 weeks. Like, that's where my high intensity is. But you can go ahead and play out all these assumptions over the next like 13. So we do that 13 week cash burn. and so I would say that I just want to make that distinction between financial cash flow.

Tom: Yeah.

Adam: forecasting in this cash flow management service that we provide.

Tom: Yeah. Yeah I think that's great.

Adam: And as an owner of a business, a really nice control where they're every single week, they can be sitting in these meetings and knowing what's coming in, what's going out. How much cash do I have? All the vendors were going to pay can be a place where they see, you know, Tom XYZ is getting a $10,000 check and they're like, never heard of that. Tell me again who that is. Even though you might have some approval processes that are in place. and we're using the cash flow tool, which in presentation them is a spreadsheet. And so when they say move this out from here to here, it does it very quickly. Right? They can say, I want to pay that bill later, make these assumptions and you can see what happens with that.

Adam: And I think the- the other thing is too is like so this is whether you're providing bill pay service or not. So you can still provide this high level service. Now for us, if we're doing the bill pay, we always want to provide this service. And so I know a lot of times, like whether you're using Bill or whatever process, you can have this approval process. And if you're the owner, Tom, I can put the bill in there. I can send the approver to you. You go, yeah, sure. Pay it. And then I go pay it. My question is, is like, did you double check to make sure you can pay it? You know what I mean? Like, did the client do that.

Adam: Did we do that? Well I mean, I guess we would check, you know, because if payroll comes because it trust me, this has happened to me as an owner, when you make a huge credit card payment and it's like, yeah, but payrolls next week. Oh. Oops. Yeah. Maybe you should have not paid the whole thing this week. You know what I mean? That kind of thing. So I ran through that with clients before. And so for us it's like who is responsible for that? And whenever you just do this like approval process, sometimes it's like, oh, I thought you were doing that. And I mean, you could explicitly say, Tom, that's on you. But then that's still kind of sucks for you. You know what I mean? So, so but you know, so if we're doing the bill pay, we always want to do that. But I think the other thing that you can sell is a huge value is even if you're overseeing an internal team, a client has people doing these functions.

Adam: It's additional oversight, you know, because you're seeing what's going out, you're seeing what's coming in. You're also holding them accountable to making sure somebody is doing the collections on that are, you know, so you're like going, hey, what's this? What's that? And the invaluable part for us is that if you're doing this on a weekly basis, whenever you go to do your month and close and your review and all that stuff, I know who the vendors are. I know why we're paying them. I don't have to ask you a bunch of questions. I'm like, oh yeah, I know that. Oh yeah, I remember we were paying that. Oh, where did that bill go? Because I remember us talking about it, you know, all those kind of things. I can answer those questions for myself, which is super cool.

Tom: Yeah.

Adam: And I know one of the things that you have talked about is not if we're the ones paying the bills on the screen in bill.com, we can pay the bills during the meeting.

Tom: Right.

Adam: And then you can avoid the owner knows exactly what got done. And we've all probably had times where something didn't get paid. And now the person is upset saying, I think I told you to pay that. Well, if it's in the meeting and it happened, you can say, remember when we checked everything? Yeah, we both missed it, but it wasn't that you told me and I promised to do it later. And for the person doing the work, they're not leaving the meeting with a long to do list that suddenly they got to try to find the time. Yeah, it's Friday, and I got other stuff to do, and it's like, oh, crap, I forgot to send those bills out, you know what I mean? Make everything a working meeting if possible. The other cool thing is too, is that you know, you as the reviewer for the end of the month stuff or you as the bill enter if you're doing that stuff. It's also a great opportunity to just ask for clarification like, hey, I saw this bill come in what's this for? You know, I saw these credit card charges coming this week. What are those for? You know, so you can also get your so you're getting your questions answered. You're getting clarification. You're getting on the same page. You're actually doing the bill pay. And then Tom how long do these meetings usually take us.

Tom: Oh they're scheduled probably for 30.

Adam: And I think many of them are 15 minute meetings. It can be a really quick.

Tom: Yeah.

Adam: But often our owners don't want to cancel them. They like to check in and say, I mean, isn't it great? You got a ton of money. No chance of running out soon. You got all the money to pay your bills. Here's what's do pay them. That's got to be a bit of an ego fulfilling thing for an owner to go great. I'm rich. I paid all my bills, I walk out, I'd like to be. Unless it's the gatekeeper effect too, right? Like some of them. Even if they have a bunch of money, this is again their opportunity to be educated on what's going out and the frequency and all that kind of stuff, just like it is for us.

Adam: So. So yeah, usually 15 to 30 minutes is what we tell people. It usually takes a half hour or whenever we start. And then once we get into a rhythm with a client, they're literally taking 15 minutes, like so you're not just filling air to fill air. what about prep time?

Adam: Often this is done offshore wise, and I bet 15 to 30 minutes. I mean, I would reinforce as a CFO, I'm not involved in these processes. We've got really good seniors, and they take care with the client. And I've had accountants ask me if this is confusing, that I can have a meeting with the owner later in the day. The owners know the roles. They don't expect to walk in and have me know everything that happened in the cash flow meeting. Our seniors are good enough. They will let me know if, hey, cash is really tight and things are really tough on the client, they'll let me know that kind of thing. But it really is separated it.

Adam: The one other point that I would make is it's really good that this can be used to reinforce best practices, like one way to receive invoices. We're big fans of Broadcom, but we would encourage everything go through a bill. Com and often we have vendors like well sometimes they email it to a person or it gets dropped on someone's desk or this and that. This lets it get to that one place and things like, okay, everything is going to get improved in Bill. Com or in the cash flow meeting and having those kind of black and white rules can just help a business run more clearly. You even emphasize the part about collections. How often do we say, you know, Adam Hale is 90 days past due and everyone sort of looks at each other and you're like, really? Not one person is responsible. Everyone just thought someone would call him. And so in that meeting, it's like, okay, who's on point to give them a call in and go get your money?

Tom: Yeah, 100%.

Adam: Yeah. I think yeah. That's why I say even if we're not doing it, I think there's just that muscle memory is so important to to work into any business owner. And I would say even from like a preparation standpoint, like you said, you know, somebody's got to do the reconciliation beforehand. The tool is pretty quick to populate. You want to look at it a few minutes ahead of time. So you're you're probably spending 15 to 30 minutes prep time for a 15 to 30 minute call. you know, that kind of a thing. And then, if things get really nasty, like, Tom, you would step in, right? Like, so as a CFO, you'd be like, I'm going to be on the next cash flow call just to kind of hear what's going on and make sure that I'm in tune with stuff. So, I mean, you can check in and do those kind of things. And the cool thing is, is like, you know, like you said, seniors can either, you know, move the meeting if they have a vacation or whatever, or a CFO can come in if they've truly done their job, you know, and all the thing is, is to just review it and articulate what's going on.

Tom: A CFO can step in and cover for a senior with no problem.

Adam: Yeah, yeah. And one example I stepped in recently and it sort of made sense in hindsight, but cash was so bad for this company that our seniors start a process of only focusing on this week. Right. We're only going to pay the few bills and this and that. Well, they weren't maintaining that 13 week forecast. And the owner made a comment about that. And I said, oh, we're supposed to be doing that. So I went back and talked to the team and it was just this is what we thought the owner wanted. Every time we're in the meeting, that's all he asks. I'm like, remember, he really cares about when is he going to run out of money? And it wasn't hard to do, but it just reinforced that, hey, this is what we promise. It is important. I can't tell you. I've got one client where my analyst John is really good at this, but they know they will run out of money in December of certain things don't happen.

Adam: And every single week. It's actually now in our meeting that the owners want to see this in addition to the regular cash flow, but he brings that up and then he'll say, and that doesn't include your line of credit and these things, but they love just at least being aware what that number looks like. And so that 13 week view is really important.

Tom: Yeah, really important service a really important distinction between the two. you know, financial versus cash flow management and and an opportunity for you to be able to add additional value to your client.

Adam: Yeah.

Adam: And we didn't really reinforce, but it does make you sticky with the client. Right. They become pretty dependent on that. And it's pretty hard to just not continue doing that. So lots of good reasons to offer this and a great service for people.