Have you stepped back and looked at the balance in your business bank account and wondered “where did all the money go?” Maybe your sales have been at their highest point ever, your business is profitable on paper, but you find yourself short cash, possibly dipping into your line of credit with the bank. A 13-week cash flow forecast may be the solution, and here are 5 steps to developing one.

  1. Pick your starting point
    Decide on a start-date for kicking off your first 13-weeks of cash forecasting. Start with the cash balance in the bank as of that date.
  2. Estimate your cash receipts for week 1
    Be very realistic and conservative and ask yourself “what do I expect to bring in this week in cash receipts from customers?” This is very much an art – look at the previous week, consider this week a year ago, what about average receipts over a period of time, take into account your business’ seasonality.
  3. Estimate your cash payments for week 1
    Similar to above, consider the areas where you expect to make payments in the upcoming week.
  4. Repeat steps 2 & 3 for each of the remaining 12 weeks
    Congratulations, you’ve now forecast your cash balance out to 13 weeks! But if you stop at step 4, you are selling yourself short.
  5. Update this in real time
    After each week has concluded check the actual bank activity that occurred. Update your projections with the real live information for the weeks that have come and gone. Then use this information to improve the receipts/payments forecasts for future weeks. And one more thing – every week, add another week of forecasts to the end so you constantly have a 13-week forecast horizon.

Now what do you do will all of this information? How is this exercise useful? Well, at this point you should start seeing the weeks or months where cash is tight and where cash is more plentiful. Look at your listing of receivables and payables – think about calling certain customers to accelerate some collections. Maybe the terms with your suppliers are such that you can push payments out days or weeks without disturbance.

And finally – why 13 weeks you ask? Because there are 52 in the year, and if you can do this for one quarter then you can do it for the whole year!

Contact Us with Your Questions

If you have questions or need help with cash flow forecasting, contact our professionals at The Innovative CPA Group at 203-489-0612.  Or contact us online.