The 13-Week Cash Flow Model

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When establishing a new cash flow forecasting method, it is critical to choose the appropriate time frame. This post is part of a series we’re writing about how multiple time horizons might be employed in cash forecasting. This post will look at the cash flow forecast for the next 13 weeks.

Please download our pdf whitepaper: 13-week cash flow forecast setup guide for more details. The book delves into how businesses utilize a 13-week cash flow estimate and provides practical guidance on how to achieve best practices.

The correct time range for a prediction is heavily influenced by the forecast’s commercial objectives. You should be able to determine whether the 13 week cash flow model is appropriate for your business needs by investigating its applications, benefits, and downsides.

Applications of a 13-week cash flow model

Because of its versatility, we selected to begin this series of papers with the 13-week cash flow model. 13-week predictions are familiar to corporate senior management, including the CFO, because they will be used in various types of quarterly strategy and planning meetings. Similarly, investors frequently like the 13-week timeframe since it provides a realistic picture of the firm in which they are involved. The same is true if a business finds itself in a difficult circumstance. A 13-week cash projection should be able to indicate when and how any possible liquidity deficits would affect a corporation in this case. As a result, it is possible to anticipate, if not correct, any problems before they occur. A 13-week cash estimate is also frequently required for bank reporting and lending requests. In conclusion, while a 13-week cash flow estimate isn’t appropriate for every situation, it does have a wide range of applications. We will go through these in further depth below.

Actuals (far left column) and predicted values are shown in the weekly cash forecast (columns to the right).

The Benefits of a 13-Week Cash Flow Forecast

Finding a happy medium

The 13-week cashflow model’s time horizon is short enough to facilitate rapid, tactical decision making, yet long enough to drive longer-term decisions. The 13-week cash flow estimate also aids in balancing accuracy and range. The accuracy of a forecast declines as it stretches deeper into the future, which is a general reality in forecasting. 13 weeks is long enough to have an influence on strategic decision making while staying short enough to achieve a high level of precision.

Planning for the medium term without jeopardizing longer-term objectives

A CFO, treasurer, or financial controller may establish medium-term cash management strategies with 13 weeks of visibility. This might involve loan repayments and drawdowns, short-term investments, or other management actions.

In the long run, while 13 weeks is sufficient for medium-term and month-to-month cash planning, it will not overlap with longer-term plans that might span years. As a result, there is less need for plan reconciliation. The 13-week projection can help with medium and short-term planning choices, but longer-term planning remains the responsibility of the broader company planning process.

Keeping the short-term planning gap at bay

Most business planning methods provide monthly forecasts and budgets, which provide limited short-term visibility. A 13-week cash flow forecasting procedure is often divided into weekly reporting periods, providing four times the detail. This implies that any short-term planning gaps may be remedied with a thorough examination.

Predicting liquidity risk

Risk management is an essential component of any cash forecasting process. Forecasting with a 13-week horizon should be precise enough to anticipate possible liquidity difficulties while still providing enough time to take corrective action. For example, if a possible liquidity gap is recognized with 10 weeks’ notice, the treasury team has enough of time to prepare by arranging bank funding or analyzing intercompany loan possibilities.

Complying with business regulations

A weekly rolling 13-week cash flow projection will always give cash balance insight on the following important reporting date or quarter end since it covers the whole quarter. This is tremendously beneficial to the firm since top management will always require information on cash levels that correspond with their own important reporting dates.

Banks and investors will find this useful.

Depending on the company’s ownership structure, debts, bank links, or investment status, it may be required to give a liquidity prediction for at least 13 weeks. It’s an important indicator of solid financial management, and it gives a bank or investor a clear picture of the company’s working capital.

When is a 13-week cash flow estimate inappropriate?

Planning for short-term liquidity

If the company objectives are more tightly focused on short-term liquidity planning, a shorter forecast horizon (say of 10 business days) may be more appropriate. A shorter-term projection might have daily reporting granularity, allowing it to report on high-level flows and balances with high accuracy at a more exact date in the very near term.

Long-term risk management of liquidity

While a 13-week forecast horizon can identify and address medium-term liquidity difficulties, a 6-month forecast horizon (divided into weekly for 13 weeks and then monthly for the next three months) may be more effective in identifying longer-term liquidity risk issues.

How to Select the Appropriate Time horizon

Take a “goals first” strategy.

As stated at the outset of this essay, it is critical to define the appropriate time horizon in order to develop the intended projections. Considering the forecasting process’s objectives, then picking a time horizon that provides projections that fulfill those demands, is the best strategy.

The advantages of software

Using specialized cash flow forecasting software may enhance accuracy and quality, reduce administrative load, and boost trust in a company’s cash and liquidity projections. The weekly projections provided by the rolling 13 week flow model, for example, may be analyzed at the press of a button. Quick and simple forecast vs. forecast and forecast vs. actual accuracy measurement identifies biases and allows changes and corrections to be made as needed.

Creating a new process?

If you are thinking about starting a new cash forecasting process, we have created a cashflow forecasting setup guide that you are welcome to download. The book goes over the practicalities of creating a forecasting model, what is needed in preparation for the project’s launch date, and what happens after go-live.

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