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Why every business needs to create weekly cash flow forecasts

What you’ll learn

  • A brief overview of why business needs to create weekly cash flow forecasts
  • What are the key components of a weekly cash flow forecasts

What are weekly cash flow forecasts?

Weekly cash forecasts project a company’s liquidity over a certain period, estimating the timing and amounts of cash inflows and outflows. This cash flow forecasting tool can be used by companies of all sizes, both new and established. The weekly cash flow estimate may be applied to enterprises across various sectors and company structures. Breaking down the cash flow forecast weekly catches the granular changes that can be missed if done monthly, quarterly, or annually.

What is a healthy cash flow in business?

When a company’s cash flow forecast shows no negative cash position, its cash flow is healthy. The quality of a company’s cash flow is also essential to examine. 

High-quality cash flow comprises the following: 

  • Growth in revenue
  • Increase in accounts receivable collections
  • Reduction in sustainable expense
  • Reduction in debt service/ restructuring of debt

Low-quality cash flow comprises the following:

  • Increase in debt financing
  • Delay in vendor payments
  • Continuous investment of equity (e.g., owner contributions)
  • Growing but unsubstantiated sales estimates

How frequently should a company perform a cash flow forecast?

The metric of cash flow is constantly changing. It must be tracked regularly during a specific time. So, building cash flow forecasts weekly, monthly, quarterly, or yearly is relevant. The firm’s demands will determine which time span is the most useful. Financial experts advocate a monthly cash flow forecast at the absolute least, but weekly in times of economic uncertainty.

For steady, established firms, monthly cash flow forecasts or quarterly forecasts are more relevant. However, to be ahead of the curve, forecasting cash flows weekly is helpful for firms that are expanding or undergoing substantial changes, such as a restructuring or merger/acquisition.

Weekly forecasting cash flows ensure companies in debt have the cash on hand to make those payments (and any interest payments associated with that debt) each time they’re due. A weekly cash flow forecast can assist cash-deficit businesses in identifying potential cash flow issues that could lead to a covenant breach, requiring them to pay the balance of their loan in full, on-demand.

What to include in the weekly cash flow forecast?

Typically a cash flow forecast will contain some or all of the following components:

  • Beginning balance for the period
  • Receipts – broken down by cash flow item/ classification
  • Total cash receipts
  • Cash payments – broken down by cash flow item
  • Total cash payments
  • Net cash change (Cash receipts – Cash payments)
  • Week ending cash position (Beginning balance + Net cash change)

What are the benefits of a weekly cash forecast on business?

The benefits of weekly cash flow forecasting are as follows:

Benefits of weekly cash flow forecasting

  • Answers ‘What if’ questions through scenario planning:

    Scenarios are a valuable weapon in the strategist’s arsenal. They are especially beneficial in building methods for navigating the types of extraordinary events that have lately occurred in the global economy.

    Scenario planning is highly beneficial in automated cash flow forecasting. Due to the manual operations necessary, organizations frequently lack the resources to develop customized forecasts.

    The capacity to swiftly develop and generate tailored projections enables firms to predict the impact of decisions and the potential value of investments before making them. Scenario planning can be utilized to address all of your team’s “What if” queries, which are:

    • What if creditors and employees are not paid on time?
    • What if there is a recession or change in interest rates?
    • What if the customers pay very late?

    These concerns can be answered by running such scenarios and observing the effects on the company’s cash flow over time. Late payments from customers and clients may significantly impact cash flows. Modeling alternative scenarios, on the other hand, can assist firms in comprehending their future objectives, potential outcomes, and how various events will affect their cash inflows.

  • Identifies and plans for cash shortages:

    A successful cash flow forecasting procedure can be critical to a company’s success. In times of uncertainty, an organization’s capacity to handle considerable volatility can drive long-term financial health.

    A cash flow forecasting model provides an early warning sign of a company’s future business health by examining cash balances under several future scenarios. With an accurate cash flow forecast, a company can foresee future cash shortfalls and minimize missing payments.

    Cash flow forecasts give firms the foresight to execute corrective actions such as fine-tuning payment and collection procedures, liquidating assets, or approaching lenders. Forecasts can help foresee a surplus or lessen the impact of a cash deficit.

  • Allocates cash surplus appropriately:

    Businesses rarely profit from having a large amount of idle cash on hand. Forecasts can assist in identifying prospective surpluses and allowing cash managers to deploy extra cash properly.

    Businesses must create cash flow forecasts and put additional capital to work, whether investing or utilizing excess cash to gain a competitive edge. Scenario planning assists firms in estimating the impact of specific investments or actions as they look to allocate spare capital.

    Excess cash in the bank is uncommon for many organizations, but using extra cash for reinvestment in new markets or debt repayment can be critical to maintaining actual cash flow.

  • Lowers the cost of capital:

    A corporation can minimize borrowing to meet intermediate obligations such as payroll and rent by knowing liquidity. In other circumstances, a company might lower its cash holdings and instead deploy the capital through reinvestment in the business, debt reduction, or dividends.

  • Manages FX risk:

    An accurate strategy of forecasting cash flow is essential for controlling and limiting the risk associated with foreign currency. Forecasts enable cash managers and treasurers to forecast cash requirements and minimize the need for foreign currency transactions.

    The primary responsibility of the treasury manager is to ensure that the company has enough liquidity to allow the operational units to function. When forecasting potential cash surpluses and deficits, it is vital to consider quantities and currencies and the periods over which the surpluses or shortages will occur. Forecasting cash flows weekly assists firms in better understanding their exposures and developing a plan to mitigate FX risk.

  • Oversees seasonality:

    Many companies are affected by seasonality. Seasonality is challenging because each firm has different peak and low sales periods. With seasonality, financial shortfalls might become more probable.

    Instead of dealing with these gaps when they arise, a weekly cash flow forecast helps identify them before they have any impact on the business. A weekly cash flow forecast predicts when cash outflows and cash receipts will be more significant or lower, allowing for better management of the company’s working capital needs.

    Understanding the company’s seasonality and the average level of cash reserves guarantees how to prevent catastrophic cash shortages and manage working capital demands all year.

  • Improves collaboration with other departments:

    To create a cash flow forecast correctly, the finance team must communicate with colleagues in sales, accounts payable, accounts receivable, human resources, and other departments.

    It compels financial forecasting professionals to have a more comprehensive grasp of the business and how it runs.

How to build your cash flow model using HighRadius’ cash flow forecasting template?

It’s simple to build a cash flow model with this free cash flow forecasting template. With this template, users can use these free, ready-to-use excel templates to make it easy for treasury professionals to plan proactively, record, and manage the company’s cash. It allows users to compare daily, weekly, and monthly expected cash revenues and payments to the operational expenditures and other outflows.

What does it consist of?

It includes the following free and ready-to-use forecasting templates in Excel format to help treasury professionals smooth out and expedite the process of forecasting cash across various time horizons: 

  • Daily 
  • Weekly
  • Monthly 
  • 13-Week Rolling

Benefits with HighRadius cash forecasting template

  • Understand the implications of future goals and potential results
  • Create a number of scenarios
  • Estimate and prepare for any cash shortages and surpluses
  • Anticipate the effects of future changes
  • Prevent cash flow shortages

How should cash flow forecasting templates be used?

Simply enter the beginning balance as well as the amounts for all cash receipts and cash payments. 

Still, want to learn more about forecasting cash flows weekly with automation? All you have to do is talk to our experts.

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The HighRadius™ Treasury Management Applications consist of AI-powered Cash Forecasting Cloud and Cash Management Cloud designed to support treasury teams from companies of all sizes and industries. Delivered as SaaS, our solutions seamlessly integrate with multiple systems including ERPs, TMS, accounting systems, and banks using sFTP or API. They help treasuries around the world achieve end-to-end automation in their forecasting and cash management processes to deliver accurate and insightful results with lesser manual effort.