What is a 13 Week Cash Flow Forecast in Accounting?
What is a 13-week cash flow model?
A 13-week cash flow model is a financial forecasting tool used by businesses to estimate their cash inflows and outflows over a 13-week period. It provides a short-term outlook of a company’s cash position, allowing management to identify potential cash shortages or surpluses and make informed decisions to manage their financial liquidity effectively.
The 13-week timeframe is chosen because it strikes a balance between short-term cash planning and longer-term forecasting. Find out more about the uses of this forecast in our helpful guide.
What is a 13-week cash flow forecast used for?
A 13-week cash flow forecast is used for several reasons in business. The primary purpose is to provide businesses with a clear understanding of their near-term cash position. Alongside this, there are other key reasons it can be so helpful to a business:
Cash flow planning: By projecting cash inflows and outflows over a 13-week period, businesses can plan for upcoming expenses and anticipate any potential cash shortfalls or surpluses.
Working capital management: The forecast helps businesses manage their working capital effectively by highlighting periods of cash strain or excess.
Risk management: A 13-week cash flow forecast assists in identifying and managing potential risks to the business’s cash position. It helps anticipate periods of low cash reserves, such as seasonal fluctuations or unexpected disruption.
Financial decision-making: The forecast provides crucial information for making financial decisions in the short term. It assists businesses in evaluating the feasibility of investment opportunities, assessing the need for financing, and evaluating the impact of various financial strategies on their cash position.
Communication with stakeholders: A 13-week cash flow forecast can be shared with stakeholders. This can instil confidence in stakeholders regarding the company’s financial health and viability.
A step by step guide to create a 13 week cash flow forecast
Creating a 13-week cash flow forecast involves several steps. Here’s a general guide on how to create one:
- Gather historical data: Collect all relevant financial data from the past few months to understand your business’s cash flow patterns. This historical information will serve as a basis for forecasting.
- Identify cash inflows: Determine the various sources of cash inflows your business receives. Analyze historical data to identify trends and estimate future cash inflows based on expected sales, customer payment patterns, and other revenue sources.
- Project cash outflows: Identify and categorize your business’s cash outflows. These may include expenses like payroll and any other operational expenses. Use historical data and expected future expenses to estimate the timing and amounts of cash outflows.
- Consider timing and seasonality: Take into account any timing differences between cash inflows and outflows. Consider the impact of seasonality or other factors that might affect your cash flow patterns.
- Assess working capital components: Analyze your working capital components, such as accounts receivable and payable. Consider the expected changes in working capital and their impact on your cash flow.
- Incorporate non-operating items: Account for any significant non-operating items that may impact your cash flow, such as capital expenditures or investments. Adjust your cash flow forecast accordingly to reflect these events.
- Adjust for uncertainties: Consider potential risks and uncertainties that could affect your cash flow. For example, changes in market conditions or customer behavior. Build in contingencies or alternative scenarios to account for these uncertainties.
- Monitor and update regularly: A 13-week cash flow forecast is not a static document – unless you are using a smart financial forecasting tool. Review and update it regularly as new information becomes available.
Remember, creating a 13-week cash flow forecast requires careful analysis, knowledge of your business’s financials, and an understanding of the factors influencing your cash flow. It’s advisable to consult with your accountant or financial advisor to ensure accuracy and relevance to your specific business situation.
The advantages of a 13-week cash flow model
A 13-week cash flow model offers several advantages for businesses:
- Short-term visibility: The 13-week timeframe provides a relatively short-term outlook, allowing businesses to have a clear understanding of their cash position in the near future.
- Enhanced cash flow management: The model enables businesses to effectively manage their cash flow by providing a detailed projection of cash inflows and outflows.
- Improved financial decision-making: The model helps businesses make informed financial decisions in the short term. This enables businesses to evaluate investment opportunities, timing of expenditures, financing needs, and risk mitigation measures.
- Working capital optimization: By analyzing and projecting cash inflows and outflows over a 13-week period, businesses can better manage their working capital.
- Risk management: The 13-week cash flow model assists in identifying and managing potential risks to the business’s cash position. It helps anticipate periods of low cash reserves, enabling businesses to take proactive measures to mitigate risks and ensure sufficient liquidity.
- Stakeholder communication: The model can be shared with stakeholders to provide transparency and demonstrate the business’s financial health. It instils confidence by showcasing the company’s ability to meet its short-term financial obligations.
- Flexibility and adaptability: The 13-week timeframe allows for more frequent updates and adjustments to the cash flow forecast. Businesses can monitor and refine their projections regularly based on actual cash flow performance.
- Proactive cash management: With a 13-week cash flow model, businesses can proactively manage their cash position and take necessary actions to address potential cash shortfalls.
Overall, a 13-week cash flow model provides businesses with a focused, short-term perspective on cash flow management. It offers insights, improves decision-making, and helps optimize working capital, ultimately enhancing financial stability and resilience.
Automating the 13-week cash flow model
Automating the 13-week cash flow model can greatly simplify the process and improve accuracy. Here are steps you can take to automate the model:
- Use financial software or cash flow forecasting tools: Consider using dedicated financial software or cash flow forecasting tools that offer features specifically designed for cash flow management.
- Integrate with accounting systems: Connect your cash flow forecasting tool with your accounting software to automatically import financial data. This reduces manual data entry and ensures accuracy by eliminating human errors.
- Set up cash flow categories: Create predefined categories for cash inflows and outflows in your cash flow forecasting tool. This allows you to easily allocate and track cash movements. This can be done within Brixx.
- Input historical data: Import or enter historical financial data from your accounting system into the cash flow forecasting tool. This data serves as the foundation for building accurate projections and identifying trends.
- Establish data connections: Set up data connections to automatically import real-time or near-real-time financial data from various sources. This ensures that your cash flow projections are based on the most up-to-date information.
- Configure forecasting assumptions: Define the assumptions and parameters that drive your cash flow projections. These may include payment terms, expected growth rates, seasonality factors, and other relevant variables. .
- Generate cash flow projections: Once the historical data and assumptions are in place, the cash flow forecasting tool can generate automated projections for the next 13 weeks. The tool will apply the defined rules and assumptions to calculate cash inflows and outflows based on historical trends and anticipated changes.
- Monitor and update: Regularly review and update the cash flow forecast by comparing it to actual cash flow data. Monitor any discrepancies and refine assumptions as necessary. The automation features of the tool should facilitate quick updates and provide you with real-time insights into your cash flow position.
- Utilize reporting and analysis: Leverage the reporting and analysis capabilities of the cash flow forecasting tool to gain insights into cash flow patterns, identify potential risks or opportunities, and communicate the forecast to stakeholders effectively.
By automating the 13-week cash flow model, you can streamline the forecasting process, reduce manual errors, and have a more accurate and up-to-date view of your cash flow.
When you don’t want to use a 13 week forecast
It may sound like the 13 week cash flow forecast is the only forecast you’ll ever need. This isn’t exactly the case. 13 weeks is still a relatively short-sighted view of your business’ future. Its role is simply cash flow management. It’s all about highlighting the actions you need to take just to survive week by week.
There are a number of situations where the range just won’t be sufficient for your business.
Think of financial planning for seasonality
Many industries, like leisure and tourism, have their sales impacted by the time of year. If you make the majority of your sales over a specific time period, such as summer, you’ll find yourself cash rich in this period.
However, planning further ahead for these businesses is even more necessary. You’ve got enough cash now but can you survive during the off-peak season? 13 weeks won’t be long enough for you to forecast your off-season and peak season. So, if this is you, you’ll likely need to create a 12 month forecast at least.
Financial planning with investment funding
Your cash situation might also be quite different. If you are an early-stage business and have just received a large amount of investment, you won’t have any short term cash worries. It might be tempting to skip the forecasting process altogether here but you’ll see that it’s just as important.
As a startup, you’re probably not profitable yet and you might not be for a while. How long is that cash going to last you and will you become profitable before it’s all gone? It’s therefore absolutely crucial to plan further into the future to work out when you’ll breakeven. If it doesn’t look like you can get there before you run out of funding then it’s better to realise this earlier rather than later.
Financial planning around business strategy
Even if you are an established, profitable business, long-term forecasts are a useful tool. They help you make strategic decisions around your ‘big picture’ business goals and objectives. If you are always looking at the short-term then you might make decisions geared around short term gain rather than the long term health of your business. Taking the time to look at this big picture every so often helps ensure you’re not doing the same thing in 2 years time and stagnating as a business.
Planning your 13 week forecast in Brixx
So, we have established that a 13 week forecast can be hugely beneficial to your business. Forecasting the months ahead gives you the opportunity to put plans into place to avoid these stressful situations. This process can be done in Brixx. Simply sign up, create your plan, and set your date range to 13 weeks. Should you need any support, we are here to help!
