A business can be profitable and run short of cash. It may incur large unexpected expenses, or it could book revenue today but not collect payment for months, while expenses still have to be paid now. A 13-week cash flow forecast offers a rolling, week-by-week view of expected receipts, expenses, and cash balances over three months. This type of forecast helps management anticipate shortfalls before they happen.
What Is a 13-Week Cash Flow Forecast?
A 13-week cash flow forecast is a report that estimates the timing of receipts and payments for each of the next 13 weeks. This type of forecast typically includes the cash balance at the beginning of the period, anticipated collections and other receipts, plus payroll, supplier payments, taxes, debt service payments, capital expenditures, and the anticipated ending cash balance.
Beginning Cash + Cash Receipts − Cash Payments = Ending Cash
When these forecasts are broken down by week (as they should be), each week’s ending balance becomes the following week’s beginning balance.
Why Use a 13-Week Forecast Instead of a Monthly Budget?
Monthly totals can hide liquidity gaps. For example, a business might expect $200,000 in November collections and $175,000 in payments, but still face a cash shortage if most receipts arrive after mid-month payroll or certain supplier bills are due. Weekly timing makes those gaps visible.
A 13-week forecast is also useful for rapidly growing, seasonal, inventory-intensive, or financially pressured businesses that can encounter significant changes from week to week.
How To Build a 13-Week Cash Flow Forecast in Six Steps
1. Establish Your Opening Cash Balance
Start with reconciled bank balances and identify restricted cash (this is cash that has been set aside for a specific purpose). Decide which accounts belong in the forecast. You can also list borrowing capacity, but include it separately – don’t treat unused credit as cash.
2. Forecast Customer Cash Receipts
Use outstanding invoices, historical customer payment behavior, contract terms, and expected future sales to estimate when cash will be received. Keep in mind that just because an invoice is due on a certain date doesn’t mean that’s when a customer will pay it. Be sure to adjust expectations for known customer delays and seasonality.
3. Forecast Cash Payments
Calculate payroll, owed supplier payments, rent, utilities, insurance, taxes, debt service, and capital expenditures for each week. Use actual due dates and payment schedules for your forecast, so you aren’t planning to pay anything late. As you list expenses, distinguish between obligations you’ve already committed to versus discretionary spending.
4. Calculate Weekly Ending Cash Balances
Starting with the first week, begin with your beginning cash balance. Add any receipts and subtract expenses to get your ending balance for that week. Then carry the anticipated ending balance for each week down to establish the anticipated beginning balance for the following week.
Here’s an example:
Week 1: Beginning $100,000 + Receipts $50,000 − Payments $60,000 = Ending $90,000.
Week 2: Beginning $90,000 + Receipts $70,000 − Payments $55,000 = Ending $105,000.
Week 3: Beginning $105,000 + Receipts $45,000 − Payments $65,000 = Ending $85,000.
Week 4: Beginning $85,000 + Receipts $80,000 − Payments $75,000 = Ending $90,000.
Continue this process through Week 13. Pay particular attention to the lowest projected balance – not just the final balance. That lowest balance is your anticipated cushion for the next 13 weeks.
5. Identify Potential Cash Shortfalls
As you review your anticipated cash flow for the next 13 weeks, compare projected cash balances with some minimum operating cash threshold based on ongoing obligations and uncertainty. If the balance falls below the threshold in any particular week, you might try accelerating collections on certain receivables, delaying discretionary purchases, changing inventory plans, or arranging financing to ensure you don’t fall below your preferred minimum cash balance..
6. Update the Forecast Every Week
As you move through subsequent weeks, you shouldn’t need to completely redo this forecast each week. Instead, you can simply replace last week’s projections with actual receipts and payments and your final ending cash balance for that week. Then add a new Week 13 to the end of your rolling forecast.
As time progresses, be sure to investigate areas where your forecasts differ from reality. You may need to revise assumptions or try to change contract terms. Reviewing these forecasts to look for trends and deviations from expectations is what makes this process useful.
How To Review Cash Flow Forecast Variances
A cash flow forecast variance is the difference between a business’s actual change in cash in a given period versus the expected change for that period. For example, if you expected $100,000 in receipts but collected $80,000, that’s a $20,000 variance, and it’s important to determine whether that shortfall is due to a timing delay, a permanent change, or a flawed assumption.
It’s also a good idea to track variances over time and note whether they’re timing variances, amount variances, or repeated forecasting errors. You can use what you learn to improve billing, collections, purchasing, and the accuracy of your forecasts.
Common 13-Week Cash Flow Forecasting Mistakes
Using Revenue Instead of Cash Collections
Remember that accounting practices often require businesses to book revenue when a sale is made – not when cash is collected. For purposes of forecasting cash flow, you want to predict money will hit your bank account – not when you make sales.
Assuming Customers Always Pay on Time
Just because you always pay your bills on-time doesn’t mean other people do. When forecasting when customers will pay, use observed collection behavior rather than contractual due dates.
Forgetting Irregular Payments
When building your forecast, be sure to include things like quarterly taxes, insurance renewals, annual subscriptions, equipment purchases, and debt obligations.
Double-Counting Payments
If you’re using both manual records and bank transaction data to build your forecast, you have to make sure payments don’t get counted twice.
Ignoring the Lowest Cash Balance
When reviewing your forecast, don’t focus only on the anticipated cash balance at the end of 13. Look at cash from week to week – especially the beginning cash balances and the expenses. If your balance is low enough that certain weeks may go negative if any payments are received late, you may have a problem.
Treating the Forecast as a One-Time Project
Building a cashflow projection shouldn’t be a one-time event. The biggest value that these forecasts have comes through using them repeatedly and studying where expectations differ from reality.
What Decisions Should a 13-Week Cash Flow Forecast Inform?
A 13-week cash flow forecast can be used to make decisions on when to hire new employees, purchase inventory, invest in equipment, arrange financing, or adjust payment practices. The forecast doesn’t make these decisions automatic, but it does provide visibility into the consequences.
Do You Need Specialized Forecasting Software?
Most small or growing businesses don’t need special software for building forecasts. Microsoft Excel or Google Sheets is usually enough. If you have access to Quickbooks or Quickbooks Online for your business, there are standard reports you can use. Larger organizations may benefit from other software integrations, but that’s only because they may use different billing or payment systems – advanced integrations don’t eliminate the need for conservative planning or reviews by management.
The Bottom Line: A Forecast Is Only as Good as the Process Behind It
Any useful cash flow forecast should be maintained regularly and used to identify liquidity problems early and inform actual decisions. A forecast in a spreadsheet is a useful tool, but only if it’s included in a sound process that includes things like weekly reviews and discussion with leadership.
If you want to learn more about using data to manage your business, schedule a free consultation. We’ll explore what data you have available and discuss ways you can use that data to make better decisions about your business.
