How to build a 13-week cash flow forecast

A profit and loss statement tells you whether you made money. It doesn't tell you whether you'll have enough cash to make payroll in six weeks. A 13-week cash flow forecast does.

Thirteen weeks is one quarter: far enough ahead to see trouble coming, close enough to estimate well. It's the tool lenders and turnaround advisors use, and it's simple enough to keep for a small business.

Why weeks, not months

A month can look fine on paper while one week in the middle runs short: payroll, rent and a supplier payment landing before a big customer pays. Weekly columns show those low points that a monthly view hides.

Build it in five steps

Start with today's cash in every business account.
List the cash you expect to come in each week: customer payments by when they're actually likely to pay, not when they're due.
List the cash going out each week: payroll on its pay dates, rent, loan payments, card payments, and bills by their due dates.
Add the irregular ones: quarterly estimated taxes, insurance renewals, annual subscriptions and planned equipment purchases.
For each week, start with the prior week's ending cash, add what comes in, subtract what goes out. That's the week's ending cash.

Find the low point

Look down the ending cash row for the lowest week. That's the number that matters. If the low point dips below your cash cushion, you know weeks in advance, while there's still time to collect faster, delay a purchase or line up credit.

The low point also limits what you can safely take out today. Money that looks spare now may be needed in week seven.

Keep it current

Each week, replace the week that just ended with what actually happened, and add a new week at the end.
Compare actual cash with what you forecast. Big misses usually point to customers paying slower than you assumed.
Be conservative about money coming in and complete about money going out. A forecast that's too hopeful is worse than none.

Common questions

What's the difference between a cash flow forecast and a budget?

A budget plans income and expenses for the year, usually by month. A cash flow forecast tracks the actual timing of money in and out, week by week, to make sure you never run short.

Do I need accounting software to do this?

A spreadsheet works. Software that reads your bank accounts and bills can fill most of it in automatically and keep it current.

How accurate does it need to be?

Accurate enough to spot the low point. Being roughly right about timing matters more than being exact about amounts.

When should I worry?

When the low point falls below your cash cushion, or keeps moving lower from one week's update to the next.

Your numbers, worked out for you

Cratchit keeps the books for every company, shows what's safe to take out, forecasts the next 13 weeks of cash, and tells you what needs your attention. Take a guided tour with the Harpers, a sample family.

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Education, not advice. Confirm the details for your business with your CPA.