Podcast Summary: Business Lunch with Roland Frasier

Episode: The Cash Flow Reality Check Every Business Owner Needs
Date: December 5, 2025
Hosts: Roland Frasier (A) and Ryan Deiss (B)

Overview

In this episode, Roland Frasier and Ryan Deiss tackle a fundamental but often-neglected aspect of business success: cash flow management and reserve setting. Speaking candidly from extensive entrepreneurial experience, they share specific strategies for determining how much cash—“the reserve”—a business should hold, why it's so critical, and mistakes they've made along the way. The conversation is practical, energetic, and designed for entrepreneurs grappling with financial uncertainty, growth, or preparing for economic downturns.

Key Discussion Points & Insights

1. The Reality of Entrepreneurial Life

• The hosts begin by dispelling the myth that entrepreneurship is always glamorous, noting how even seasoned founders are pulled into unglamorous but necessary tasks.
  • Quote [01:27] (B): "It's not a perfect situation...as much as we talk about the importance of building systems to exit the day to day...very often we get pulled back in."
  • They compare this to the movie Click: always wishing away uncomfortable tasks can rob you of essential growth experiences.

2. How Much Cash Should You Reserve?

• Three-to-Six Month Reserve Rule: Traditional advice is to hold three to six months of operating expenses in cash. But this may be impractical (or excessive) for high-expense or fast-moving businesses.
  • Quote [07:54] (A): "If you're running at $3 million a month of expenses, do you need to have $20 million in cash sitting around? I don't know."
• Minimum Recommendation:
  • One month of true operating expenses in your working account (ideally for payroll, rent, recurring expenses),
  • Plus two additional months in a separate savings account for emergencies—totaling three months’ fixed operating expenses.
  • Variable expenses (like ad spend) can often be cut quickly if needed.
• Dangers of Excess Cash: Too much cash on hand can lull owners into complacency or reckless investments.
  • Quote [10:48] (B): "...it can make entrepreneurs start to feel fat and happy...they over invest in stupid stuff."
• Distribution Ethic: Anything beyond your determined reserve should be distributed to owners/stakeholders, not merely stockpiled in the business.

3. Financial Ratios as Decision Tools

• Current Ratio: Current assets divided by current liabilities, typically aiming for 1.5–2. Reflects short-term solvency.
• Quick/Acid-Test Ratio: Like the current ratio, but excludes inventory for businesses with slow inventory turnover; shoot for 1:1.
  • Quote [17:27] (A): "It's basically the current assets minus inventory divided by current liabilities and you typically want to have a one for that."

4. Sinking Funds & Strategic Savings

• For known major future investments (equipment, events, expansion), set aside separate “sinking funds” beyond basic reserves.
• Quote [21:20] (B): "That keeps everybody honest...it ensures that when you do save, you're saving for a purpose."

5. The Importance of Cash Flow Forecasting

• Many entrepreneurs fixate on P&Ls and balance sheets, but the cash flow statement is more urgent—especially in periods of rapid scale.
  • Quote [23:21] (B): "If you're going to say, like I can only look at one of them, let me look at the statement of cash flows..."
• Cash flow forecasting is vital; it’s possible to be profitable on paper and still go out of business for lack of cash.

6. Cash Conversion Cycle

• Measure how quickly you turn inventory and receivables into cash, minus how long you can defer payables.
  • Formula explained [25:16]:
    • Cash Conversion Cycle = Days Inventory Outstanding + Days Sales Outstanding – Days Payables Outstanding.
  • Longer cash cycles may require larger reserves or a line of credit to bridge gaps.

7. Lines of Credit

• A line of credit supplements reserves but should not merely be a “secured loan” (i.e., borrowing against your own money, which makes little sense).
  • Quote [39:44] (A): "If they require you to have a million dollars deposited with them...they're just loaning your money that's 100% secured with them back to you at an interest rate far above..."
• Use the line periodically to avoid banks paring it back.

8. Scenario Analysis & Industry Benchmarking

• Regularly stress test your models with “what if” scenarios: loss of a major customer, product changes, new debt, etc.
• Benchmark against industry standards (payroll %, reserves, ratios).

9. Five-Step Approach to Building and Maintaining Reserves

1. Assess Current Cash Flow:
- Know your actual situation through a cash flow statement. 2. Set a Reserve Target:
- Use the formulas (1+2 months, quick ratio, etc.) as a guide. 3. Automate Savings:
- Use automated transfers for reserve-building. 4. Invest Excess:
- Put surplus cash to work in money market or higher-yield (but still liquid) options. 5. Monitor & Adjust Regularly:
- Review at least quarterly; adjust as business realities change.

Notable Quotes & Memorable Moments

• On bringing reality to entrepreneurship:
  [06:16] (B): "If you’re ever learning from somebody and everything is always amazing in their life, they’re either lying or they're completely out of the game."
• On the problem with too much cash:
  [13:26] (A): "[If] you're sitting on a lot of cash, as you said, you can take your foot off the gas...that translates into a lack of innovation, a lack of scrappiness."
• On importance of distributions:
  [53:10] (B): "The ultimate sign of a healthy, valuable, exitable business is that company’s ability to distribute large amounts of cash to its stakeholders...Do not fall for the line that banks and investors want to feed to entrepreneurs that you need to wait until the end of the sale to get paid. That is complete horse crap."
• On lines of credit and bank games:
  [41:21] (B): "If you have a significant windfall...let’s essentially be our own bank, you know, for this business...All businesses at scale become banks. And executive leadership...becomes about capital allocation."
• On learning from mistakes:
  [35:01] (A): "We forgot to think about that way back when and that was painful. I remember that really, really well."
  • [35:34] (B): "...the pivot from one off to MRR and subscription was the right decision. Long term...We just were not prepared for it from a cash flow perspective. Big mistake, big lesson learned. Hopefully people don’t make that one."

Timestamps for Key Segments

• [07:54] – Approaches to setting cash reserves
• [09:21] – The bare minimum operating reserve recommendation
• [14:24] – Why too much cash can backfire + distribution philosophy
• [17:27] – Explaining key financial ratios (current, quick/acid-test)
• [21:20] – Sinking funds for known large future investments
• [23:21] – The importance of cash flow statements over P&Ls
• [25:16] – Cash conversion cycle explained
• [31:41] – Planning for the cash flow impact of a shift in product/pricing model
• [38:15] – Lines of credit: how and why to use them
• [43:17] – Scenario planning & industry benchmarking
• [49:06] – The five-step approach to building reserves
• [53:10] – Why consistent cash distributions signal a healthy business

Tools & Resources Mentioned

• Expense Ratio Analyzer & CEO Dashboard:
  • Free tools available at scalable.co/tools and businesslunchpodcast.com/dashboard for analyzing operating ratios and building dashboards.

Tone & Style

Candid, practical, and slightly irreverent, Roland and Ryan constantly ground their advice in real-world mistakes and lessons. They blend technical acumen with approachable explanations, making complex financial management feel relatable—even for non-expert business owners.

For Listeners Who Haven’t Tuned In

This episode is a must-listen for any entrepreneur or business owner—not just CFOs—worried about surviving downturns, scaling wisely, or simply not running out of cash. The hosts’ conversational approach, war stories, and actionable frameworks make the topic of business reserves accessible and urgent, without sugarcoating how tough (and important) cash management can be.

To Be Continued:
This is part one of a two-part deep dive. The hosts will cover the remaining five strategies for reserve setting, and a five-step formula for implementing reserve targets, in the next episode.