The 13-week cash flow forecast: a practical guide

Most businesses that run short of cash were profitable on paper. The profit and loss shows a healthy month, but customers pay late, a tax payment falls due and payroll lands on the same Friday. A 13-week cash flow forecast is the tool that shows this coming.

Thirteen weeks is one quarter. It is long enough to see a problem in time to fix it, and short enough to forecast with reasonable accuracy, because most of the money moving in that window is already known: invoices you have issued, bills you have received, salaries and loan instalments.

1. Start with the opening bank balance

Take the actual closing balance across all business bank accounts at the end of last week. Reconcile it first. A forecast that starts from the wrong number is wrong in every week that follows.

2. Forecast receipts customer by customer

List open invoices from your receivables ageing and place each one in the week you realistically expect to be paid, based on how that customer has actually paid before, not on the due date. Add expected new sales separately and keep them clearly labelled, so you can see how much of the forecast depends on business you have not yet won.

3. Forecast payments by category

• Payroll and statutory deductions on their exact dates.
• Supplier bills from your payables ageing, in the week you intend to pay them.
• Rent, software subscriptions and other fixed costs.
• Loan instalments and interest.
• Tax payments such as GST, TDS and advance tax on their due dates.
• Planned one-off items: equipment, deposits, bonuses.

4. Calculate the closing balance for every week

Opening balance, plus receipts, minus payments, gives the closing balance, which becomes the next week’s opening balance. Add a line for your minimum comfortable cash level, so any week that dips below it stands out.

The forecast is only useful if it changes what you do this week.

5. Roll it forward every week

Each week, drop the week that has passed, add a new week thirteen and update the actual bank balance. Then compare last week’s forecast with what actually happened. The differences tell you where the forecast is weak: a customer who always pays two weeks late, or a cost that keeps being missed.

6. Act on what it shows

When a week turns red, you have options while there is still time: follow up a large receivable, agree a later date with a supplier, delay a discretionary purchase, or speak to your bank about a working capital facility before you need it urgently.

Common mistakes

• Using invoice due dates instead of the dates customers really pay.
• Forgetting quarterly or annual items such as insurance and advance tax.
• Building the forecast once and never updating it.
• Mixing the forecast with accounting accruals, which are not cash.