Every SMB needs a cash flow forecast—without exception.

But a question I often get asked is, “What’s the proper time horizon?”

The answer, it depends.

If you want to focus primarily on daily or weekly receipts, then a short-term forecast is sufficient. But if you want to be able to assess current and future financial health, you’ll need to plan for the medium term.

A 13-week cash flow model is the best way to do this.

Here’s why.

What a 13-Week Forecast Tells You

At a high level, your 13-week forecast does everything from informing quarterly planning to identifying potential liquidity issues before they arise.

More specifically, it gives your business the following advantages.

• Reliable, granular insights

• More accurate planning over the medium term

• Reduced liquidity risk

• Informed quarterly planning

• Improved external reporting

Reliable, Granular Insights

One of the main advantages of a 13-week model is that it provides enough of a look into the future to get ahead of liquidity issues while still providing a short enough timeframe to ensure accuracy. In other words, forecasts tend to get less accurate the further into the future you look.

At the same time, a 13-week model breaks down your data into weekly reporting periods, allowing you to make quick, tactical adjustments while still using it as a tool for strategic planning.

More Accurate Planning Over the Medium Term

A 13-week view gives you everything you need to manage medium-term cash—from paying down debt to identifying new investments.

At the same time, you’re not having to make trade-offs between long-term growth initiatives or capital expenditures and medium-term efficiency. Rather, your 13-week cash flow allows you to support the firm’s longer-term initiatives by maximizing cash over shorter time horizons.

Reduced Liquidity Risk

With 13 weeks’ notice, you’ll be able to not only identify emerging liquidity risks, but you’ll also have adequate time to address them before they materialize.

This can be as simple as scaling back on expenses, offering early payment terms to get more cash in the door, or obtaining external funding as needed.

Informed Quarterly Planning

A rolling 13-week cash flow forecast, covering a full quarter, provides helpful context when paired with high-level reporting. It does so by telling the underlying story of how individual transactions drove the successes and shortcomings of the last reporting period.

At the same time, it offers a succinct picture of the company’s current cash position on key dates. In turn, the strategic decisions made during these planning sessions are fully informed.

As a result, your team can leave those strategy meetings armed with a set of highly specific course corrections and other action items to improve performance.

Improved External Reporting

Whether you’re looking to obtain a line of credit or to sell the business, demonstrating solid financial control is a must.

Presenting a clean 13-week cash forecast readily answers any external parties’ potential questions regarding working capital. That additional layer of transparency will often be rewarded with more favorable credit terms and a higher valuation.

How to Build a 13-Week Cash Flow Model

If you’re looking to build your own forecast manually in Excel, here’s how to do it.

First, talk to at least your CFO, CEO, and Finance team as they’ll be the ones using it for the most part. Determine where they want more visibility and where current reporting may be falling short.

Next, make a list of the data you need and where it can be pulled from. This could include bank accounts, CRM tools, the annual budget, and your A/P and A/R ledgers. From there, check with individual business unit leaders for additional details that should be incorporated into your final product.

The model itself will have two parts to it. The first part is the model dimensions, which are made up of output data presented by reporting period and category. The input data is the second part of the model. It will contain your actual and forecast numbers.

At a high level, your reporting categories are your cash inflows and outflows. You’ll also want to include multiple headline classifications for each scenario in your model. The exact line items included here should differ based on what exactly your Finance team is looking to glean from studying the forecast.

In general, though, you might want to add in the following classifications: debt payments, capital expenditures, and taxes.

While you can get the job done manually, you’ll save time and improve accuracy by opting for an automated solution.

Reply here and you will be sent our version of a 13-week cash flow model.

Putting It All Together

Here are your top takeaways from this week’s post.

1. A 13-week reporting period gives you adequate time to course correct before liquidity risks materialize while also ensuring optimal accuracy.

2. 13-week forecasts also provide much-needed context to quarterly planning. They also come in handy should you need to secure external financing or decide to sell the business.

3. You can either manually build your own 13-week forecasts in Excel or opt for an automated solution to save time and increase accuracy.

Hungry for More?

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2. Shoot me an email with your questions or requests for what you’d like me to write about next.

‘Til Next Time,

Connor