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Better client onboarding: Power of the personal cash flow statement


CPAs often ask me how long their new client onboarding process should take. My reply: As long as it takes to answer three key questions:

1. Where are you now? 2. Where do you want to go? 3. How do you know if you are on track to get where you want to go?

Importance of personal cash flow

To start answering those questions, look at your client’s personal cash flow statement. I like the personal cash flow statement because it not only includes a client’s net business cash flow, but everything else they’re financing with regard to Family, Inc. It’s amazing how many successful business owners — folks who live and breathe cash flow every day at work — have no idea what their cash flow situation is at home.


To get a better handle on your client’s personal cash flow situation, you need to go beyond their business and understand their family financial dynamics. If you don’t consider the family side, you’re just making recommendations in a silo. The personal (or family) cash flow statement is useful because it can give you a better picture of how much money a client has coming in every month and how much is going out at home — something that can really impact their business decisions, too.


The cash flow statement will take into account things that go far beyond the business cash flow statements — kids’ private school, vacations, 529 contributions and all their other savings plans.


As your client’s most trusted advisor, you need to understand their core motivations. For instance, if they’re a business owner, their ultimate goal is not to make the business grow for the sake of getter bigger; it’s about having the business support their family well. Unless you understand how your client’s business life impacts their family life and vice versa, you’re just making recommendations in the dark.


Determining your client’s personal cash flow

To come up with your client’s cash flow number, you have two choices: the granular approach or the bank statement approach. With the granular approach, you can ask clients for line items of every single household expense. You can tally up all the receipts and credit card charges and then track them against all their income sources. As a CPA, I know it’s tempting to drill down into the details, but this approach can be time-consuming and inaccurate. That’s because people’s expenses keep changing all the time — especially those “miscellaneous” one-time hits. Also, most successful people don’t enjoy this detailed process and don’t have the patience for it. Fortunately, there’s a better way.


Bank statements don’t lie

Instead, take a step back and just focus on how much net income hits your client’s bank account every month. Look at their recent bank account statements and ask them: “Is your cash reserve growing or is it shrinking?” This way, you and your client can quickly see how much they’re spending.


The reason you and your client need to understand their monthly spending is because they usually have one important goal in mind: financial independence. Whether they are working or retired, your client needs to understand how much money is coming in every month in order to meet their obligations. That’s their cash flow.


If you don’t know that number, how can you do any retirement planning projections for your client, let alone advise them about investments, estate planning or charitable giving? For instance, if a client wants to sell their business for “X” then “X” is going to be driven not only by the business valuation, but by how much they need to support themselves and their family members when they no longer have the business to throw off cash.


Where do you want to go?

The monthly bank statement is a snapshot of your client’s financial life at a given point in time. Establishing your client’s monthly cash flow is a baseline for having better conversations and delivering more relevant advice.


As a rule of thumb, clients usually underestimate their monthly spending by 10 to 30 percent. For example, they may tell you: “I make $250,000 a year and we probably spend about $100,000 a year.” My reply to that is: “Great. Let’s save the difference and put it to work.” When they hear that, their response is usually something like: “Whoa! We can’t save $150,000 a year!” In reality, the “difference” is probably closer to $70,000 a year after taxes, but even the thought of saving $70,000 a year (almost $6,000 per month) seems daunting for many people in that income bracket.


What you want your clients to do is establish good money habits, such as an automatic savings plan that can put their financial success on autopilot. But, in order to put their savings plan on autopilot, you need to know their cash flow number and come up with a reasonable savings goal that maps to that number. When the goals seem manageable and painless for your client, it’s a lot easier to keep them engaged in the process.

Understanding Family Inc.’s cash flow situation shouldn’t be any harder for your clients than understanding their business’s cash flow situation. It’s essentially the same thing: “Do we have any extra money to invest? Are we going in the wrong direction? Do we need to cut back on spending?”


I have two young daughters. Trust me, money is a lot like young kids: If it doesn’t have somewhere specific to go, it’s going to get into trouble. Make sure you have a home for all of your client’s cash flow.


Using personal cash flow to make better decisions Now that you know your client’s cash flow, what do you do with that information? If your client is fortunate and has a lot of surplus cash each month, you need to help find a good home for it. How do you want to set that up and what are the tax advantages of each option?


If your client does not have extra cash flow, you need to approach their situation from a rational financial planning standpoint. “You thought you are spending X. It turns out you are spending 1.5X. How does that impact you?” The increase in expenses should also be reflected in their retirement planning.


Now that we have a better idea of your client’s real monthly cash flow, you can ask them what they want to do about it. As your client’s most trusted advisor, your motto should be: “I guide, you decide.” The cash flow statement is just one of the many tools you have at your disposal to have better conversations with your client. In my next article, I’ll discuss more of those tools.


Contact me any time if you would like a sample cash flow organizer for your clients. Remember, “send me your tax returns” is not onboarding. In my next article we’ll take a deeper dive into the Family Balance Sheet, net worth, family tree and professional network.

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