Let me tell you a story.
I learned how to do 13-week cashflow forecasting in a trial by fire. It was early on in my consulting career, for my first client as Marren Consulting. I was about to go on vacation, but the client had just taken me on. They had just launched a new, much riskier revenue stream with uneven cash inflows and outflows, putting them in serious financial distress. Even though they had been in business for 15 years, they did not fully grasp the underlying cost structures of their business. This launch was putting them on risky ground.
, even though I was headed out on vacation, I was in the hot seat (and also the passenger seat). During the drive, I rolled up my sleeves and figured out how to prepare and implement a 13-week cashflow forecast. Here’s what I learned and how it can help your business.
Why use 13-week cashflow forecasting
If you’re like many business owners, you look at your cash balance, see it’s positive, and then move onto other things. But a quick glance at the cash balance doesn’t give you the full picture, and it does not help you prepare for the inevitable ups and downs.
As a business owner
, you want to prepare for those periods when you will be spending more than you’re bringing in. And , even when your company is flush with cash, you will want to plan for what you are going to do with the excess capital.
A 13-week cashflow forecast gives you a plan for what is coming and helps your business navigate seasonality and fluctuations. It also instills discipline over cashflow forecasting and management, which can ultimately help you build a more financially efficient, stable, and thriving organization.
The 13-week cashflow forecast can also help you plan for periodic transactions like:
- Insurance policy renewals, which can require payment for six to 12 months of coverage in one lump sum;
- Bonus payments and commissions, which may be paid on a quarterly or year-end basis and require access to significant cash;
- Capital project investments, license renewals, and fees;
- Recurring or subscription revenue payments, including delays or missed payments from large clients.
With a 13-week cashflow forecast, you can see further and more clearly into the future. This becomes very helpful when your business approaches a period of time during which cash outflow will exceed inflow. Consider these advantages:
- Smoother access to credit. You know that a period of significant expenditure is coming. With enough notice, you can have a conversation with your bank or lender on what you anticipate, so that you are prepared to tap into your line of credit to smooth outflow and inflow during this time.
- Meeting your financial obligations. This ability to plan has very real consequences for your business, like ensuring you make payroll and supplier payments.
- Reduced stress. Better visibility into anticipated cashflow can help to lessen the stress of running a business, which is often rooted in finances.
- Operational efficiency. Longer-horizon cashflow forecasting can also help you pay attention to your operations, including how often you are billing clients, when payment terms are delayed, when days sales outstanding (DSO) exceed the norm, and more.
- Opportunities to improve. Taking a deeper dive into invoicing and billing can help you identify opportunities to improve pricing and contract terms, revise your renewal policy and much more.
With the level of insight a 13-week cashflow forecast provides, you can get a lot of information on company operations and business performance. And, when cash isn’t coming in as expected, you will immediately know which areas to pay closer attention to in order to tighten up your cashflow and business finances. You’ll also know how these unexpected developments are going to affect your cash on hand.
Fractional CFO and 13-week cashflow forecasting
Let’s bring this story full circle. After I finished implementing a 13-week cashflow forecast for that first client, the team was able to execute that new business line with greater confidence. Success demanded having the right strategic financial expertise at the helm.
Like this client, many middle market and growing businesses need a high level of financial expertise to help them reach the next level of growth and stability. But many lack the resources to hire a chief financial officer (CFO), even though such expertise would mean all the difference to succeeding. This is where a fractional CFO, or outsourced CFO, can make a huge difference for an organization in steering financial and business planning, guiding an acquisition, preparing to enter a new market, or professionalizing the finance function. And yes, a fractional CFO is able to bring the benefits of 13-week cashflow forecasting to your business.
Ready to implement 13-week cashflow forecasting? We can help. Marren Consulting supports privately held businesses with strong financial leadership and accurate, relevant reporting—helping business owners and leaders identify opportunities to improve performance, unlock growth, and achieve their firm’s full potential. Learn more at https://www.marrenconsulting.com.