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Why You Need to Have a 13-Week Cash Flow Report

Why You Need to Have a 13-Week Cash Flow ReportHave you ever been in a cash flow crisis?

You aren’t able to make payroll.

You can’t pay your vendors.

There is simply not enough cash.

BUT sales are rocketing.

So in theory, there should be enough cash… Wrong.

I say this during every Office Hours I host for our SCFO Lab members… “You need to have a 13-Week Cash Flow Report. If you don’t have one, get one.” As we are quickly coming into the holidays and the new year, let’s look at why you need to have a 13-Week Cash Flow Report.

Or, do you live in a company that is cash rich, and you simply do not see the need to forecast cash because you know you have plenty in the bank?  Well, you still need a cash flow forecast.

Handling a Cash Flow Crisis?

Handling a cash flow crisis is never easy because it puts financial leaders in a difficult place. It may look like asking vendors to extend their payment terms, selling off assets, or laying off employees.

Whether your cash flow crisis resulted from the fluctuating market or mismanagement, there are a couple of tips in handling a cash flow crisis.

(NOTE: Regardless of whether cash is tight or flush, every company should have a 13-Week Cash Flow Report. In the SCFO Lab, members have access to our 13-Week Cash Flow Report template that we use with all our clients. Click here to view.)


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Update Financials & Reports

Look at your financial statements regularly, and make sure they are updated – especially your…

You cannot make smart and strategic decisions without the most up-to-date facts.  Having an updated cash flow forecast for your business that is updated weekly allows you to have a true pulse on the business. Your accounting records should be based on accrual based accounting. But your cash flow forecast ties in nicely as a great tool.

Communicate Effectively

Communication is key to handling a cash flow crisis. This could look like…

Why You Need to Have a 13-Week Cash Flow Report

The #1 reason why you need to have a 13-Week Cash Flow Report is because it’s active cash management. This report is a big picture tool that tells companies how much cash is required on a forward rolling basis. More specifically, it gives you the freedom to make big decisions.

Cash Rich or Cash Poor – You Need a Cash Flow Forecast

So, we briefly discussed that in a cash flow crisis the cash flow forecast allows you to manage cash and adjust payments to vendors while making payroll and keeping the lights on. What about in a cash rich company?

I recently started on a client, and the company is a cash rich company. The CFO was surprised when I mentioned to him that he should have a cash flow forecast.

Here are a few reasons why a cash rich company would want to know exactly how rich they are:

  1. If you are cash rich, then you may be looking at acquisitions. It would be nice to know who much you pay as cash and how much you finance.
  2. CAPEX acquisitions – you want to know how much actual cash you have to acquire CAPEX.
  3. Distributions/Bonuses, etc. – how much can you pay out?
  4. Plan for the worst –  I do not care what industry what you are in; they all eventually have downturns. Plan ahead and save up for those rainy days.
  5. If you are cash rich, then that means you made a large profit. That also means you have to probably pay taxes, or distribute cash to pay taxes. How much cash for taxes do you need?

How to Create a 13-Week Cash Flow Report

Now, let’s look at how to create a 13-Week Cash Flow Report.

There are several pieces of information that you need to gather as you build this report, including the following:

Why You Need to Have a 13-Week Cash Flow ReportTips on Making Your Cash Flow Report Successful

Here are a couple of tips on making your cash flow report successful.

Get C-Level Support

If your C-level is not supportive of creating the 13-Week Cash Flow Report or using it as they run the business, then it’s just going to be another report that never gets used.

Don’t let it become that!

This tool is so valuable AND every company should be using one.

Not using a 13-Week Cash Flow Forecast is like deciding not to drink water for an extended time. You know you need to water/cash, but you do nothing about it. Eventually, you become so illiquid that you are financially distressed, if not bankrupt.

For example, we once put together a 13-Week Cash Flow Forecast for a company that was making a small percentage of what they used to make when the market was better. We predicted that if they did not take any action, then they would be out of cash within 9 months. Unfortunately, the CEO and senior leadership did not make any changes and had to shut their doors. Our long term cash flow forecast was accurate and we warned the CEO.

Use The Report As A Playbook

The report is useless unless you actually use it as a playbook and use it to make strategic decisions. When you use the report as a playbook, you go from being an accounting/finance professional that knows how to build reports to a financial leader that strategically directs the firm.

How to Use a 13-Week Cash Flow Report

Once you have created the 13-Week Cash Flow Forecast, it’s important to maintain it. We suggest to maintain and update it at least weekly. We also suggest that you use this report in conjunction with the Daily Cash Report.

If you want to increase cash flow, then click here to access our 25 Ways to Improve Cash Flow whitepaper.

Why You Need to Have a 13-Week Cash Flow Report

Strategic CFO Lab Member Extra

Access your Cash Flow Tuneup Execution Plan in SCFO Lab. This tool enables you to quantify the cash unlocked in your company.

Click here to access your Execution Plan. Not a Lab Member?

Click here to learn more about SCFO Labs

Why You Need to Have a 13-Week Cash Flow Report

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Why Use a 13-Week Cash Flow Report as a Management Tool?

Why use a 13-Week Cash Flow Report as a management tool? Cash is king! This applies to any and all companies. No matter the size or industry, cash and cash flow are critical to any operation. Yes, some companies have access to lines of credit and other forms of financing, but that is debt that must be repaid at some point.

So if cash is so important, then why do not all companies use a rolling 13-week cash flow forecast?  We have had many clients over the years. And some, but not all, use a 13-week cash flow report as a management tool that is updated every week. Once the process is started, it is actually a fairly easy tool to keep updated.

Cash is critical to a company’s success. Click here to access our 25 Ways to Improve Cash Flow whitepaper and start improving cash flow today.

Establish a 13-Week Cash Flow Report

The first thing we do with every client is to make sure they establish a 13-week cash flow forecast if they do not already have one. And usually, the first thing we are told by someone at the client office is “our business is special, forecasting when we collect cash is almost impossible to predict”. I hear this way to often and you know, we have never failed at implementing a 13 week cash flow forecast.

13-Week Cash Flow Report as a Management ToolThe Purpose of the 13-Week Cash Flow Report as a Management Tool

The 13-week cash flow report is not meant to me an exact measure of what cash balance will be at the end of every week. On the contrary, it is a forecast. That means the actual results will be different from your forecast, especially in the later weeks. But what the cash flow forecast does tell you is your trend for ending cash balances. It actually does give you an estimate of what your cash balances will be. It is true that weeks 1,2 and 3 forecast are more accurate than weeks 11, 12 and 13.  But it does not take away that it provides some visibility as to where cash will end up.

The 13-week cash flow forecast is useful to a company that is financial distress and to a company that is flush with cash. That is because a company that is in financial distress must be able to determine what costs they need to cut in order to achieve a cash neutral position. A company that is cash rich, needs to know how flush they will be with cash to project things like capital expenditures or shareholder distributions. Either way, the company must have an idea of where they will be over the next 13 weeks. Why 13 weeks? Because that captures an entire 3 months, one full quarter. Being able to have an idea of where you want from a cash position in the next 3 months allows time for planning and decision making.

Do you need help putting together your 13-week cash flow report? Access our template and how to use it (and so much more) in our SCFO Lab. Learn more about the SCFO Lab here.

Cash Collections

It is interesting how many times we have implemented a 13 week cash flow forecast, then we look into why the cash actually collected is way off in weeks 1,2 and 3. Then we dig and find out that the actual cash collection process is poor or non-existent.

Case Study

I was part of a Chapter 11 bankruptcy process a couple years ago. The first thing we did was implement a 13 week cash flow forecast. This is something any CRO would do. When asked about cash collections, the CEO told me that the sales team (7 people) handle collections with their respective client relationships. When we were way off on week 1 and 2, I asked the sales people why we are off?  What are they doing to follow up on late accounts receivable (A/R)?  The response from everyone on the sales team was that they do not handle calling to collect invoices and outstanding A/R.  They stated that the accountant makes those calls and follows up with old A/R.  When I asked the accountant, she said the sales guys collect old A/R.

No one was following up with collections of old A/R. I initiated a daily phone call with all the sales people and assigned clients to call on and follow up on old A/R. We started with daily calls. And we saw some progress, then we went to every other day, then weekly calls. Over then next 5 weeks the company collected $2.7 of $3.2 million dollars in old AR.

So How Do You Start Using a 13-Week Cash Flow Report?

Week 1,2,3….13

Create a template that has a direct method cash flow statement.

Cash In –         Cash from accounts receivable

Then list cash from work not invoiced yet (this would be in the outer weeks)

Cash Out–       Major lines of operating expenses

Payroll

Other

On a weekly basis, pull A/R and A/P from your accounting system. Then link the individual items to the line items in the cash flow forecast. Don’t forget payroll totals.

Include a section below operations for CAPEX activities and another section for Financing Activities.

End cash balance by week

Cumulative cash balances by week

Have one person in your accounting department responsible for updating the 13-week cash flow forecast weekly. Make sure you have a dedicated person/people follow up on collections.  Compare the forecast for each week to the actual cash collections and cash payments – note variances. Then adjust how you forecast.

It is that simple! This tool will buy you peace of mind and allow you to have insight on your cash trends. You need to know this no matter the size of your company or your industry. Do not get frustrated; your first 3-4 weeks are a learning process. Your forecast WILL be off. Make adjustments and understand your variances. Before you know it, you will have a good feel for what your cash trends are. If you are strapped for cash now, click here to access our 25 Ways to Improve Cash Flow whitepaper. Make a big impact on your company today with this simple checklist.

13-Week Cash Flow Report as a Management Tool
Strategic CFO Lab Member Extra

Access your Strategic Pricing Model Execution Plan in SCFO Lab. The step-by-step plan to set your prices to maximize profits.

Click here to access your Execution Plan. Not a Lab Member?

Click here to learn more about SCFO Labs

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