Cash flow is the oxygen of every business. Without adequate cash flow, businesses cannot function: they’re incapable of paying their employees, fulfilling their obligations to their suppliers, or making forward-looking investments that drive growth.
When it comes to managing cash flow effectively, few tools are as impactful as a 13-week cash flow forecast. This short-term financial planning instrument provides a clear, week-by-week view of inflows and outflows. It’s a vital tool that helps leaders understand their business’s short-term liquidity, identify trends, and take action to strengthen their operating model.
At G-Squared Partners, we’ve refined this approach to make it practical and actionable for our clients. We routinely produce 13-week cash flow forecasts and educate our clients on how they can use them to run their business more efficiently.
In our many years of creating these financial models, we’ve learned plenty about how to build a 13-week cash flow model that pairs simplicity with powerful financial insight. In this introductory guide, we’re pulling back the curtain and sharing the high-level four-step process we use to create cash flow models. We’ll also share a series of best practices for you to keep in mind as you build your own forecast, and shine light on the situations where 13-week cash flow forecasts are most valuable.
Why Use a 13-Week Cash Flow Forecast?
At G-Squared Partners, we produce 13-week cash flow models for many of our clients on a weekly basis. For some, it’s a tool that instills discipline in their financial management process. For others, a 13-week cash flow model becomes a necessity when liquidity is tight. In these instances, these cash flow models offer businesses an invaluable tool to understand how they can better manage their cash.
Besides these high-level benefits, there are several other operational benefits that businesses realize when they commit to producing a 13-week cash flow forecast. These types of forecasts allow businesses to:
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- Spot Trends Early: If cash inflows are consistently lower than expected, address the issue by revisiting your revenue projections or tightening your collections process.
- Plan for Shortages: Identify weeks where cash may run low and proactively explore solutions, such as securing short-term financing or renegotiating payment terms with vendors.
- Communicate with Stakeholders: Share the forecast with team members, lenders, and investors. Transparency builds trust and demonstrates your commitment to sound financial management.
- Manage Burn Rate and Cash Runway: many startups operate with a negative cash flow, drawing down on cash reserves they’ve raised through equity or debt financing to fund their operations. A cash flow model is a crucial document in enabling you to manage burn rate and identify the time when your company must become cash flow positive, or raise more funding.
In most instances, a 13-week time period gives leaders the clarity they need, but in some cases, it might be preferable to produce a cash flow forecast that covers a longer period. For longer time periods, it’s typically better to break down cash flow by month, creating a six-month forecast instead of a 26-week forecast. This is common for VC-backed companies that must carefully manage their cash runway in between funding rounds.
Building a 13-Week Cash Flow Forecast: Four Key Steps
Creating a 13-week cash flow forecast for the first time demands that you strip things back to the basics. Ultimately, what you’re most interested in is understanding how and when cash flows both into and out of your business.
To build a 13-week cash flow forecast, follow the four key steps outlined below.
Step 1: Gather Cash Inflows
Start by organizing your expected cash inflows: funds that flow into your business from an external source. Generally, a business’s cash inflows can be broken into three main categories:
- Cash Receipts from Existing Customers: Review recent invoices and identify payments that are still due from accounts receivable. For most businesses, receipts from existing customers represent the lion’s share of their cash inflows. Ensure you’re tracking payment schedules and addressing overdue invoices promptly. Base your estimations of when you expect to collect payments from customers based on their payment history and your team’s knowledge of their accounts. Remove any aging AR you don’t believe you’ll be able to collect and plot the cash inflows across the next 13 weeks based on when you expect to receive each payment.
- Future Billings: Estimate revenue from upcoming sales and forecast when your business will receive these funds. It’s crucial to be conservative in your projections here. It’s always preferable to underestimate this than to overestimate since overestimating cash availability can lead to issues down the line. Use historical data on the length of your sales cycle and revenue collection processes to estimate when future billings will land.
- Other Income Sources: Include miscellaneous inflows, such as the ability to draw on a line of credit or other financing tools like convertible debt and SAFEs.
By summing up these three sources of cash inflow, plus any others that might apply to your business, you’ll develop a comprehensive view of all the cash you expect to flow into your business in the coming 13 weeks. This gives you a solid foundation to create the rest of your forecast.
Step 2: Map Out Cash Outflows
Once inflows are accounted for, shift focus to your cash outflows. These are expenses: funds that are disbursed from your company to some other entity. Like with inflows, you should categorize these expenses to provide a detailed and comprehensive view:
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- Payroll: Typically the largest line item on your cash outflows is your company’s payroll. This figure should include your employees’ salaries, as well as any other costs associated with running payroll: payroll taxes, 401(k) contributions, profit sharing, and so on.
- Recurring Charges: most businesses have plenty of recurring charges, from the rent on their office building to products like Amazon Web Services that play an important role in their tech stack. Payments to the company’s credit card are also typically included in this category.
- Accounts Payable: Consult your business’s AP to determine the amount of money you owe vendors and when those balances fall due. Then, build these future cash outflows into your model in accordance with when these payments fall.
- Other Expenses: Depending on your business’s cost structure, you might have additional categories. For the sake of simplicity, we’ll call this final category ‘Other Expenses’: a catch-all category that might include line items such as marketing expenses or professional fees.
By being thorough in this step, you ensure every dollar leaving your business is accounted for, reducing the risk of surprises. At G-Squared Partners, we perform a reconciliation between what’s in a company’s profit & loss statement and what’s in its cash flow forecast to ensure that every dollar is accounted for.
Step 3: Build the Forecast
With inflows and outflows outlined, input the data into a week-by-week framework. Start each week with the prior week’s ending cash balance and layer in the expected inflows and outflows.
At G-Squared Partners, we use a standardized template for this process that’s in line with what banks, investors, and other financing partners expect your 13-week cash flow forecast to look like. This ensures the cash flow forecast is suitable for all audiences: not just your company’s executive leadership team.
Download Our Template Now: 13-Week Cash Flow Template
Step 4: Analyze and Adjust
Your first 13-week cash flow forecast won’t be perfect, but the idea is that over time, your ability to forecast your business’s cash flow position will grow stronger as you have more data to inform your projections.
Input actuals to your model every week and analyze variances to identify where your forecast missed. The details matter here. Perhaps a customer paid three weeks earlier than you expected them to. If that’s the case, make sure you update your forecast since your business won’t collect that cash twice.
The key to success is treating this forecast as a living document. Regular updates are essential to reflect the latest realities of your business. Schedule weekly reviews to adjust for actual inflows and outflows, and refine future weeks based on current trends.
Best Practices for Building 13-Week Cash Flow Models
When it comes to creating effective 13-week cash flow models, there are several best practices to keep in mind. These strategies can help you build a forecast that is not only accurate but also actionable and aligned with your business’s unique needs.
- Keep It Simple: While the forecast should be detailed, avoid over-complicating it with unnecessary data points. Focus on what matters most for your business and give the users of your cash flow statement a simple, high-level overview, with more detail easily available for those who want it.
- Leverage Technology: Automated tools can help streamline the process, reduce errors, and save time. Look for software that integrates with your accounting system for seamless updates, or leverage an advanced Excel template that’s custom-built for the job.
- Train Your Team: Ensure key personnel understand how to contribute to and interpret the forecast. Collaboration leads to more accurate and actionable insights.
- Review Historical Data: Update your forecast with actuals on a weekly basis and compare your forecasts to actual results. This will help you refine your assumptions and improve accuracy over time.
By incorporating these principles into your process, you can maximize the value of your forecasting efforts and ensure your cash flow model becomes an integral part of your financial strategy.
Upgrade Your Approach to Financial Management with G-Squared Partners
A 13-week cash flow forecast isn’t just a financial tool—it’s a strategic advantage. By following the four-step approach outlined here, you’ll put your business in a position to unlock clarity and increase control over its finances. Armed with these insights, you’ll be better positioned to plan for the future, navigate challenges, and seize opportunities with confidence.
At G-Squared Partners, creating 13-week cash flow models for businesses is just one element of our comprehensive outsourced CFO, accounting, and bookkeeping solutions. We work closely with businesses across tech, SaaS, life sciences, and more industries to help founders take a more sophisticated approach to financial management.
To learn more about how we can help your business accomplish its financial goals, schedule a consultation today.
