How Do I Build a 13-Week Cash Forecast?

Does your business frequently struggle to make payroll? Are you at risk of defaulting on debt? Having trouble predicting cash balances with accuracy?

If your Cash Flow is unpredictable, your cash reserves are low, or if a missed payable could jeopardize your business operations, you need to perform a 13-week cash forecast (TWCF). 

This type of financial model is often strategically deployed by companies facing financial distress and uncertainty. Done properly, a TWCF can provide much-needed insight and visibility into the company’s short-term strategic options. This ultimately puts you in control of your cash. 

Today, we will explain the ins and outs of a 13-week cash forecast and show you how to build your own model. 

What Is a 13-Week Cash Flow Model? 

A 13-week cash flow forecast is a financial tool businesses can use to optimize their cash management in the short term. Like a regular cash flow model, it tells you how much cash you have today while charting the daily cash inflows (cash sources) and outflows (cash uses). The only notable difference is that the set time horizon is much shorter.  

A cash flow forecast acts as the proverbial canary in the financial coal mine, alerting you of impending issues. Basically, it helps you avoid surprises and properly prepare for the future. 

An accurate TWCF provides vital information, answering questions like: 

• How much cash is in the bank?
• Will you be able to make payroll?
• Can your debts and obligations be met? 
• Should we invest more in labor, inventory, marketing, or capital? 
• Do we require outside financing? 

What are the benefits of the 13-week Cash Forecast?

Advantages for liquidity-constrained companies include: 

• Increased trust and transparency – TWCF improves transparency and trust between a company’s management, stakeholders, and creditors. It uses data to clarify specific cash pressure points and then accurately determine the size of financing needed (if needed). 
• Improved decision-making – Equipped with accurate, up-to-date financial data, a business can identify its most pressing cash flow needs and then analyze the potential impact of taking various strategic, operational, and financial measures. 
• Better control – When you are short on cash, you have to be judicious about every dollar you spend. But to practice frugal cash management, you need visibility about how you are spending and whether that spend is yielding ROI. Equipped with such knowledge, you can begin to install the necessary measures to correct any underlying imbalances.
• Insights into your working capital – Working capital management involves accounts payable and receivable, inventory, and cash on hand. Having insights into the specifics of your working capital can help you establish plans for utilizing and growing said capital. 
• Understand your cash flow problems – Many companies cannot point to the exact source of their cash flow problems. For instance, poor planning leads to unexpected charges, and poor cash management means you do not know where the money is going. With a TWCF, you can identify the root problem that is contributing to cash flow issues. 

How To Build a 13-Week Cash Forecast 

Do you want to control your company’s liquidity over the medium term?

Then follow these steps: 

Step 1: Find a Template 

Unlike many other long-term forecasts, cash flow models do not need to be built from the ground up. They rarely, if ever, require complex formulas. For the vast majority of businesses, you can begin the process with a basic template that includes the following three elements: 

1. Beginning on-hand cash – This covers the funds in the company’s checking, money market, and savings accounts. 
2. Cash inflows – This is not just your revenue. It includes all sources of cash, including sales, A/R collections, customer prepayments, federal and/or bank loans, and owner investments. Inflows should be detailed in order of certainty.
3. Cash outflows – This is not just your expense. It includes all uses of cash, including both variable costs (inventory and labor) and fixed costs (rent, utilities, software, etc.). Outflows should be listed in order of size and import.

Step 2: Pick the Starting Point 

As the name suggests, the data in the spreadsheet should be broken up into week-long cells, ranging from the current date (week 1) to the future date (week 13). Once you have selected the starting date, list the exact cash balance in the bank as of that date.

This starting balance is your beginning cash balance. 

Step 3: Estimate Cash Receipts 

What do you expect to bring in this week from your customers? An essential aspect of cash flow management involves timing. For that, you need to know the details of your invoicing cycle. 

Also, while recurring revenue is easier to predict, there are still other variable elements. For example, you always need to account for things like consumer demand and seasonality.  

Step 4: Estimate Cash Payments 

Starting with week 1, begin estimating your cash payments for the upcoming week.

From there, repeat the process for the next 12 weeks. This will include all bills, payroll, and debt service payments. Since these estimates can impact future values, it is vital that they be as accurate as possible. For that, you can pull from historical data to inform present projections. 

Step 5: Update the Charts 

In the beginning, your initial 13-week forecast may be more speculative than you might prefer. The good news is that you can update the numbers weekly to improve future receipts/payment forecasts. Also, after the end of each week, you should add another week to the chart so that you continue to have an accurate, real-time, 13-week forecast horizon.