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13 WEEK CASH FLOW FORECAST

November 13, 2018

By Jeff Granger


After completing hundreds maybe even a thousand or more 13 week and more cash flow forecasts for clients over the past 30 years, I have a strong opinion on the utility of this exercise. Detailed cash-flow forecasts are the best tool in the proverbial bag of business tools needed to run a successful business. Some professionals say there’s no need for a cash flow forecast for a business that has plenty of cash or capital available. Well I say that’s bad advice! Here are a few thoughts as to why.

The comments below are predicated upon updating the 13-week cash flow often. Frequent updates capture new operating information or changes to your Plan from both external and internal events. Comparing actual results to your cash-flow plan must be done every week, without fail!  Making and managing these changes makes this a dynamic business tool. It’s where the benefits become crystal clear and it’s an ideal way to keep score.

Every business hits bumps  on the road to success. If a company’s cash management discipline is imbedded in the business, the implications of running short of cash will be known well in advance of hitting a BUMP. Anticipating cash flow needs  enables managers to fund operations through the most challenging situations. Vendors, and especially lenders, appreciate a heads up notice of impending cash needs and, knowing that you are already on top of the situation makes lenders more willing to assist you when you need their capital most.  Too many times borrowers let their critical financial partners know about their capital needs when it’s too late to help.  My advice is to be transparent. Keep your financial partners in the loop. They want to help you and they will if they are confident that you know what you’re doing.  Maintaining and managing with a 13-week cash flow plan shows them that you do.

Every business has good and bad customers. Some pay you on time.  Others take forever to pay. Days Sales Outstanding (“DSO”) is a measurement how fast receivables are coming in. Constant measuring of DSOs is required to monitor both 1) when you might get paid and 2) the likeliness of getting paid at all. That is critical information that you need to know. The DSO numbers are a key input, for a 13-week cash flow forecast. If a negative variance surfaces, it is very easy to zero in on the guilty customer and take immediate corrective action. As an aside, when you are transparent and issue a monthly DSO report to your sales and marketing teams – listing DSOs by sales territory or sales person – you’ll see your cash flow improve and your DSOs will drop like a rock.  Sharing total sales numbers with your marketing team isn’t enough.  Actual collections is a much better metric and, better yet, start paying commissions on a “cash-collected” basis and your company’s cash flow will accelerate even faster.

The planning process of measuring actual results may also other benefits. I have one client that used this tool to uncover theft in a most surprising place.  Recently, I had a client discover, through his “actual to plan variance” reporting that pallet expense was rising dramatically. Long-story-short, the facility plant manager had decided to inflate his pallet purchases so he could get a kick back from the supplier. This was quickly discovered, analyzed and stopped.  This “good catch” was all due to careful monitoring of the company’s detailed cash flow forecasts and the reporting mechanism that compared actual results to the initial plan.  It spotted the HUGE variance. As a result, the Plant Manager and a payables clerk were replaced, improving both employee morale and operating performance. Finding this “needle in a haystack” would have been difficult using only the Cost of Goods line on a typical Income Statement.

These are only a few examples of the benefits that can accrue from preparing 13-week cash flow plans and refreshing them weekly. The first few attempts can be painful but hang in there.  As the organization works through the variance reporting process it becomes easier to complete and more accurate.

There is one other benefit of careful cash flow monitoring.  If you happen to be shopping for a bank loan and you tell your banker that you perform 13-week cash flow forecasts often and update actual plan-to-plan results every week, you and your business will be viewed in a much more favorable light when it comes to getting additional capital to grow your business.  Give it a try. You won’t be disappointed.

One Response to “13 WEEK CASH FLOW FORECAST”

  1. Fabulous and very well written piece. Can’t wait for the next one. 😉

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