Everything You Need to Know About a 13-Week Cash Flow Forecast

In today’s ever-evolving business landscape, there is an increased focus on building an agile organization that will thrive in the face of adversity. Recent unexpected factors, such as the COVID-19 pandemic, rapid technological advancement, geopolitical turmoil, and economic uncertainty, have established resilience as a critical differentiator. Efficient SME and SaaS financial forecasting can help businesses achieve this resilience.

The 13-week Cash Flow Forecast (TWCF), a model often used in budgeting and forecasting for SMEs, offers businesses a flexible tool to inform their decision-making, especially during turbulent times. This forecasting model highlights aspects of a business’s cash flow and liquidity and helps factor in changes from week to week, increasing their adaptability to uncertainty.

Let’s examine the 13-week cash flow forecast, how it benefits your business, and how to create your TWCF model.

The 13-Week Cash Flow Forecast Explained

The TWCF forecast or model showcases your business’s cash receipts and disbursements or cash inflows and outflows over 13 weeks. It offers a detailed near-term view of a company’s finances, highlights its immediate cash flow needs, and helps lay out the financial, strategic, or operational remedies it could explore. 

Typically used when a company faces financial distress, such as a restructuring or bankruptcy, this model provides essential guidance and support with decision-making during volatile times. A TWCF model creates greater transparency and trust between a company’s management, creditors, and stakeholders. According to experts in outsourced financial services, a TWCF is very helpful when a business is facing bankruptcy. A TWC forecast can help debtors secure pre-petition or debtor-in-possession (DIP) financing and move the needle between filing for Chapter 11 or Chapter 7.

Components of the 13-Week Cash Flow Model

A TWCF model will differ based on a company’s structure and unique needs; however, the main components of this model include the following:

• A 13-week cash flow output and input providing a summary of cash receipts and disbursements across 13 weeks, including one week of actual historical data.
• A summarized cash flow forecast that highlights any immediate revolver loans or debtor-in-possession (DIP) needs that are required to maintain a minimum cash balance.
• A cash to EBITDA forecast that helps management and stakeholders draw comparisons between the company’s profit forecast and short-term liquidity issues.
• A working capital roll-forward schedule contains forecasts of balance sheets or working capital items, such as vendor payments, payroll, and inventory purchases. This schedule predicts how a business’s needs and requirements could change weekly.

Why Your Business Needs a 13-Week Cash Flow Forecast

The 13-week cash flow forecast was initially utilized as a reporting and decision-making tool by businesses navigating restructures or bankruptcy. However, it is now considered a valuable addition to everyday budgeting and forecasting for SMEs and SaaS companies. It enhances cash flows, provides a favorable view of your company, and prepares you for worst-case cash shortages and liquidity issues.

The TWCF model gives your business agility, which is the key to SaaS financial forecasting. It helps you keep track of cash inflow and outflow on a week-to-week basis so you can better manage your disbursements and balance your cash flows. This model can identify potential cash flow disruptions, manage risk, and prepare your business for unforeseen circumstances that might impact your cash flows.

This forecasting model also plays an essential role in loan or credit scenarios as it offers lenders a detailed view of your company’s situation and short-term needs. Additionally, it helps decision-makers determine how much money they need to borrow and for how long, optimizing their use of external financial sources and high-interest debts. 

This forecasting model’s 13-week period spans the length of one full fiscal quarter but still provides details on individual weeks. This perfectly balances accuracy and strategic value, supporting planning and decision-making in the medium and long term.

5 Steps to Building Your 13-Week Cash Flow Model

As mentioned above, a TWCF model differs from one company to another, depending on their unique needs. Here are the steps you will need to take to build your 13-week cash flow model:

     1. Determine Your Objectives

Lay a solid foundation for your forecasting model by identifying a clear audience and purpose. Consider why your business needs a TWCF model and what objectives you hope to achieve. This will also help guide the decisions you make based on your model. Some common reasons for creating a 13-week cash flow forecast include:

•  Preparing for a financial crisis caused by unforeseen factors
• Taking measures to enhance cash flows and conduct medium-term planning
• Approaching investors or lenders for additional funding
• Identifying and managing liquidity risks

     2. Identify Your Stakeholders and Their Needs

Curate a list of everyone contributing to or using the forecast model and any subsequent reports. Then, identify each stakeholder’s needs and requirements, how often they will use the model, and what they will use it for. This exercise will ensure that your model has a clearly defined audience and purpose, making it an effective decision-making tool.

     3. Establish Accurate Data Sources

The effectiveness of your forecasting model depends heavily on rich data. Tap into various data sources, such as your business bank accounts, CRM tools, accounts receivable and payable ledgers, and enterprise resource planning systems. Consider leveraging technology to link your data to your model and streamline data collection. This will update your model regularly and provide automated predictions and recommendations to ease your decision-making and planning.

     4. Record All Inflows and Outflows

If you choose to do things manually, you must ensure that you have recorded all your cash inflows and outflows and net inflows and outflows. Some of these numbers will remain constant over time. However, others must be regularly updated for accurate and efficient forecasting.

Some everyday inflow items include:

• Sales revenue
• Interest income
• Accounts receivable
• Customer payments
• Loans

Some everyday outflow items include:

• Vendor and supplier payments
• Accounts payable
• Loan and rent repayments
• Federal taxes

     5. Analyze Your Forecast

Once your model is in place and populated with the relevant data, analyze your forecast to determine your company’s current and predicted cash position. Identify whether your net cash flow is growing or declining and if there are areas where inflows and outflows could be adjusted. If your forecast is manual, remember to update your predicted values with actual values each week to maintain the accuracy of your model. 

Use your forecasting model to identify cash shortfalls and patterns, mitigate risk, and establish contingencies where needed. Highlight areas where your cash position could be improved, for example, through your bank’s line of credit or by re-evaluating vendor terms. Regularly re-forecast and update your model based on changing needs and external factors.

In Conclusion

Efficient financial forecasting provides businesses with a future-focused approach that helps build resilience and ensures they thrive in volatile times. A 13-week cash flow forecast is a tool that combines accuracy and agility so businesses can have a clear view of their cash position and optimize their decision-making. Cash flow forecasting helps companies stay prepared for unforeseen circumstances and paints them in a favorable light when approaching investors and lenders. With this handy guide and with expert outsourced financial services, you can ensure your forecasting processes are structured and maintained effectively. This will give you access to forecasting experts and the latest software to optimize your processes and help your business navigate today’s ever-changing landscape.

Want to know more about effective cash flow forecasting? In addition to HR, benefits, recruiting, and payroll through its PeopleOps, Escalon’s Essential Business Services include FinOps (CFO services, taxes, bookkeeping, and accounting) and Risk (business insurance). Talk to an expert today.

This material has been prepared for informational purposes only. Escalon and its affiliates are not providing tax, legal, or accounting advice in this article. If you would like to engage with Escalon, please get in touch with us here.