How to Build a 13-Week Cash Flow Forecast

Introduction

Cash flow is the lifeblood of any business, and managing it effectively is essential for long-term success. A 13-week cash flow forecast is a powerful tool that helps businesses plan and manage their cash flow more effectively. By projecting their cash inflows and outflows for the next 13 weeks, businesses can identify potential shortfalls or surpluses in advance and take proactive steps to address them. 

In this blog, we will explore the benefits of 13-week cash flow forecasting and how treasury professionals can create a 13-week forecast to help manage their organization’s cash flow effectively. So, whether you are an enterprise or an SMB, read on to learn how a 13-week cash flow forecast can help you keep your business on track and achieve your financial goals.

What is the 13-week cash flow forecast model?

As the name suggests, this model helps you forecast weekly business cash flow over a period of 13 weeks by subtracting cash disbursements (outflows) from cash receipts (inflows) for every week. 

When should you use the 13-week cash flow forecast model?

A 13-week forecast is often requested by stakeholders during times of financial strain or economic uncertainty, but it can also be useful in quarterly financial planning. Although the 13-week cash forecast model is well-suited for mid-term planning, it may not be the ideal choice for long-term planning. In such cases, a longer-term forecast, such as a 6-month or 12-month forecast, would be more appropriate.

Benefits of Creating a 13-Week Cash Forecast

The 13-week cash flow forecast model offers several benefits for businesses, including:

1. Improved Cash Management

By predicting your cash inflows and outflows for the next 13 weeks, you can spot any potential shortfalls or surpluses in advance and take action to fix them. This helps you manage your cash more effectively and avoid any cash flow issues.

2. Increased Visibility 

A 13-week forecast gives you a better idea of your cash position in the short term. This knowledge allows you to make informed decisions about investments, expenses, and other financial commitments.

3. Better Decision-Making

With a clearer understanding of your cash position, you can make better decisions about investments, expenses, and other financial commitments. This can help you optimize your cash flow and achieve your financial goals.

4. Improved Communication 

A 13-week cash flow forecast can help you communicate your financial position more effectively with stakeholders, like investors, lenders, and other important people. This can build trust and confidence in your business and its financial management.

So, no matter the size of your business, the 13-week cash flow forecast model can be a helpful tool to improve cash management, increase visibility, make better decisions, and communicate more effectively with stakeholders.

How To Build a 13-Week Cash Forecast?

Here is a step-by-step guide for building your own 13-week cash flow forecast and how to implement it.

Step 1: Define Stakeholders’ Objectives

By determining what your stakeholders want from the 13-week model, you will be better equipped to build a forecast that meets their needs and provides the necessary insights to drive your business forward. 

For example, they may be looking to improve forecast accuracy, simplify intercompany financial data collection, gain operating cash flow (OCF) visibility, or build reports more quickly.

Step 2: Ensure Integration of Data Sources

There is a wide range of data sources that feed into your 13-week forecast. These sources could include:

• Bank accounts
• ERP systems
• Accounts Receivable and Accounts Payable ledgers
• Financial planning and analysis (FP&A) tools
• CRM tools
• Treasury management systems (TMS)

This way you know which tools you’ll need to connect to your 13-week model. For instance, you connect all your bank accounts in an ERP system from which you create accurate AR and AP ledgers. This connectivity is especially important for a 13-week forecast because you have to create the forecast on a weekly rolling basis.

Step 3: Set Up Your 13-Week Model

When creating your 13-week forecasting model in a spreadsheet, add two sections: model dimensions and input data. Model dimensions present output data by reporting periods and reporting categories, such as cash inflows and outflows. On the other hand, input data includes both actual and forecasted figures.

To ensure that your forecasting model is effective, you should break down reporting categories into headline rows and line items based on the requirements you mapped out earlier. This will help you create a more detailed and accurate forecast for each scenario, with different headline classifications and granularity.

In addition to the basic reporting categories, there are other headline classifications that you can explore, such as capital expenditure, tax, intercompany cash movements, and debt/interest payments. By including these additional headline classifications, you can gain greater visibility into your financial performance and make more informed decisions about investments, expenses, and revenue-generation strategies.

Here’s a ready-to-use 13-week rolling cash flow forecast template for you to start forecasting immediately.

Step 4: Implement the 13-Week Model With The Team

To ensure the success of your forecasting model, it is crucial that you get buy-in from all stakeholders involved. This means documenting and communicating the requirements you mapped out earlier and assigning responsibilities to the right team members.

To measure the success of the model, document the requirements you mapped out earlier. Communicate these goals to every project contributor so that they are aware of the model's value.

To minimize forecast errors, it is important to collect data in a timely manner. Define who handles what data and set deadlines for feeding that data into your system. By doing so, you can ensure that the data is accurate and up-to-date, which is crucial for making informed decisions about investments, expenses, and revenue-generation strategies.

Why Should You Automate Your Cash Flow Forecasts?

The Global Treasurer survey states that treasury teams spend approximately 5,000 hours per year on spreadsheets, wherein 792 hours are spent on generating cash flow forecasts. Automated cash forecasting can help treasury teams in saving those 792 hours to focus on strategic decision-making.

Apart from time savings, here are some reasons why automated cash forecasting is better than manual-based cash forecasting:

1. Seamless integration

While using spreadsheets, the treasury resources need to gather data from multiple data sources such as ERPs, TMS, bank portals, and from various teams such as FP&A, Payroll, HR, A/R, and A/P departments. This process is tedious and error-prone. However, automated cash forecasting supports seamless integration with multiple data sources and automatic data consolidation, thus minimizing the scope of errors.

2. Real-time access to information

In manual-based cash forecasting, the treasury department needs to update the spreadsheets manually. Due to this, the turnaround time for reporting increases, and the reports become outdated when they are sent out to the CFOs. This causes difficulty in making timely decisions. On the contrary, automated cash forecasting helps to capture real-time data automatically and store them in a central repository. Automatic retrieval of data across all entities helps CFOs implement data-driven decisions by reducing the turnaround time.

3. Increased accuracy in cash forecasts

Spreadsheet limits adding multiple variables, so specific nuances can’t be tracked while forecasting cash flows. In contrast, automated cash forecasting helps predict customer-specific payment dates accurately by incorporating multiple customer and invoice-level variables. External factors such as raw material price fluctuations and seasonality can also be considered to capture trends for generating an accurate cash flow forecast.

4. Identify variance across multiple entities and durations

The manual process makes it difficult to track variance between forecasts and actuals and the causes of variance. But automated cash forecasting enables performing variance analysis for various cash flow categories for multiple durations. It also reduces the variance by continuously analyzing past and current results and making adjustments in the forecasts.

Learn more on how automated cash forecasting makes cash flow forecasts foolproof and how it improves treasury’s overall operations and performance.

How to Automate Your Cash Forecasts?

Using HighRadius’ AI-based cash forecasting solution, helps you automate your forecasts and achieve up to 94% accuracy with real-time data collaboration and insights.

• Automated data gathering and consolidation of financial data increases granular visibility and improves reporting to the CFOs.
• Easy integration with ERPs, bank portals, FP&A systems, and legacy systems and through API or SFTP and dashboards help to gain easy and continuous data access.
• Automatic roll-up of forecasts from local to global level across various cash flow categories, regions, currencies, entities, and horizons improves accuracy.
• Spreadsheet functionality within the solution allows making manual adjustments to the forecast to account for one-off events.
• The ability to perform variance analysis over multiple cash flow categories, regions, and durations and drill-down capability to find the root causes of variance helps take necessary corrective measures.
• The closed-loop feedback model reduces the variance by using bank statement data and fine-tuning forecasts to boost forecast accuracy.
• Tailored forecasting cadence ensures that the forecasts meet the requirements and goals of a company. For instance, cash deficit companies can forecast daily/weekly to prevent debts, and cash surplus companies can forecast quarterly to invest in business growth.
• The time series algorithm helps capture seasonal trends to maximize profits during peak seasons and reserve cash for off-seasons.
• Customer-specific variables are captured easily for identifying patterns in customers’ payment behavior. Thus, treasurers can easily track complex cash flow categories such as A/R and A/P.

Frequently Asked Questions (FAQs)

What is 12 months projected cash flow?

A 12 months projected cash flow estimates a business’ expected cash inflows and outflows over the next 12 months. This projection takes into account expected sales revenue, expenses, investments, and other cash-related transactions that the business expects to make over the next year.

How do I create a cash flow forecast in Excel?

Create an Excel spreadsheet with the following columns – Date, Cash Inflows, Cash Outflows, and Net Cash Flow. List the dates for each week, starting with the first week of your forecast, and enter the expected cash inflows and cash outflows for each week.

In the “Net Cash Flow” column, subtract the cash outflows from the cash inflows to calculate the net cash flow for each week. Then, calculate the total cash inflows and outflows and the total net cash flow for the forecast period.

How many months should a cash flow projection be for?

The length of a cash flow projection depends on the specific needs of the business. A common length for a cash flow projection is 12 months, which allows businesses to plan for the year ahead and identify potential cash flow issues in advance.

However, some businesses may choose to project cash flow for a shorter period to focus on the short term and respond more quickly to changes in their cash flow. Longer projections may be less accurate and require more assumptions, so they should be updated more frequently to ensure their relevance.

How often should you do a cash flow forecast?

The frequency of cash flow forecasting depends on the specific needs of the business. It is generally recommended that businesses update their cash flow forecast regularly to ensure that it remains accurate and relevant.

Businesses that have a high degree of cash flow volatility or uncertainty may need to update their cash flow forecast more frequently, such as on a weekly or even daily basis. This can help the business to respond more quickly to changes in its cash flow and avoid any unexpected cash flow issues.

What is 3 way cashflow forecasting?

Three-way cash flow forecasting is a comprehensive financial planning tool that takes into account the interdependencies between a business’s income statement, balance sheet, and cash flow statement.

This approach to cash flow forecasting provides a more complete picture of a business’s financial position and helps to identify potential cash flow issues in advance.