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The Art of Cashflow Planning

Cashflow Planning is at the heart of a Financial Plan, acting as a visual aid with the capacity to illustrate various scenarios as you guide your clients through the various challenges they are likely to encounter, over the course of their financial journey. It is also one of the great measuring sticks able to determine the suitability of your advice especially when advising on Drawdown and Final Salary Transfers.

It’s no wonder there has been an increase in the use of this vital tool within financial planning firms in the UK. Prudent Paraplanning have been helping a number of financial planning firms with this software and this has benefited them and their clients. We needn’t look any further then the impact of Covid19 and volatility within the markets and wider economy (the full impact still remains to be seen), however throughout this storm clients have been comfortable in the knowledge that their financial plan has implemented the effects of drastic scenarios like this and they have been the beneficiaries of quality financial planning and advice.

Clients are also confident that long term there won’t be a material change to their standard of living, those who did need to make changes, whether, curbing spending in certain areas, reduce debt or increase the size of their emergency fund have also found solace because they have had solid advice before the event. They understand the advice, strategy and reasons why, behind the advice given.

Cashflow Planning can’t predict the future but it does provide a guide to an individuals attitude towards money, financial circumstances and the impact of the planning and advice you are providing and this allows them to familiarise and understand why they should go ahead with your recommendations.

To some degree it is only as good as the information provided, but as there is more emphasis on true financial planning, this allows for more open discussions to be conducted in a clear and concise manner, allowing your clients to express their aims and objectives in finer detail and giving them (SMART) goals over the short, medium, and long term.

This takes away the need to base advice on investment performance as that is not something we have any control over and the plan acts as a great sales advisory aid in its own right. However the value add is being able to advise clients that they can afford to provide funds for their children’s house deposit, wedding or even purchase that camper van they have always wanted.

I must admit I take delight in discussing with planners/advisers that they have advised clients to retire, it’s a very powerful sentence, to be able to say to a client YOU CAN AFFORD TO RETIRE NOW or SPEND MORE MONEY. Especially when the client has no idea they can afford to do this beforehand, and the irony is, many more people could be in this position if they had access to this type of advice. .

One of the key uses for Cashflow Planning is to identify shortfalls, establish budgeting strategies, debt levels, liquidity and protection and stress testing, in reality this only touches the surface. There is no use getting near retirement age and then realising you do not have enough, this must be implemented as early as possible.

However because of the type of information being input there are many caveats, used poorly they will give both financial planner/adviser and client a false sense of security, with the client likely to become complacent in the level of savings they need to make in the accumulation phase, or the level of income that can be taken from a pension or investment product when it comes to decumulation. It must be used effectively and it must be highlighted with the client that Cashflow Planning must be reviewed at every given opportunity to maintain its value and quality, this must become a watertight process and we can help. This is, The Art of Cashflow Planning.

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