A few months ago, a client called us on a Friday afternoon. He was panicking. Payroll was due Monday and he was not sure he could cover it. His P&L showed a profitable quarter. But his bank account told a very different story.
Profit does not equal cash. It is one of the most painful lessons in business, and we see owners learn it the hard way more often than we would like.
The solution is not complicated. It is a 13-week cash flow forecast. And once you have one, you will wonder how you ever ran your business without it.
Why 13 Weeks?
A 13-week window, which is one rolling quarter, is the sweet spot. It is far enough out to spot trouble coming but close enough to be reasonably accurate. Anything shorter and you are just reacting. Anything longer and the projections become guesswork.
How to Build It
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Start With Your Bank Balance
Write down how much cash you have today. This is your starting point. Not revenue, not receivables. Actual cash in the bank.#
Project What Is Coming In
Look at your accounts receivable. What invoices are outstanding? When do they typically pay? Be realistic here. If a customer usually pays in 45 days, do not assume they will suddenly pay in 15.Add recurring revenue, expected new sales, and any other cash inflows.
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Project What Is Going Out
List every cash obligation for each of the next 13 weeks. Payroll. Rent. Vendor payments. Loan payments. Tax deposits. Owner draws.Do not forget the irregular expenses. Quarterly insurance premiums. Annual software renewals. Equipment deposits.
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Do the Math
Starting Cash + Cash InWhat You Will See
The first time you build this, something will jump out. Maybe it is a week three months from now where your projected balance goes negative. Maybe it is a pattern where you are always tight the same week every month.
That visibility is the whole point. When you can see the problem three months out, you have three months to solve it. You can accelerate collections, push a large purchase back a week, or arrange a line of credit before you need it.
Keep It Updated
Spend 20 minutes every Monday updating your forecast. Record last week's actuals. Roll the forecast forward one week. Adjust future projections based on what you now know.
It sounds simple because it is. But that 20-minute weekly habit is the difference between controlling your cash flow and being controlled by it.
The Payoff
That client who called us in a panic? He has been running a 13-week forecast for six months now. Last week he told us, "I actually feel like I am running my business instead of my business running me."
That is the goal.