When you’re getting into financial forecasting, you want to find the balance. Long-term forecasting is key, but if you only focus on the future, you risk burning through your runway too quickly and never making it there. Managing your weekly cash flow matters, too, but you need to zoom out to power your strategy.
When money’s tight, striking that balance gets extra critical. A lot of startups operate with a relatively tight cash runway. It’s not uncommon to know you’ve only got a few months of cash that you need to make work.
So staying on top of the flow of that money is absolutely key. In times when startups need a hands-on approach here, they often turn to a 13-week cash flow forecast.
When startups use a 13-week cash forecast
13 weeks isn’t long enough to power a company’s long-term success. This isn’t a model you should plan to use forever. Instead, this type of forecasting comes in handy when you’re operating in a financial crunch. Specifically, many companies use it when they have three months or fewer of cash runway.
You might also consider implementing a 13-week cash forecast when:
- You’re struggling to make payroll
- Missed debt repayments mean facing steep penalties
- You owe money to vendors you’re not sure how to pay
- Your burn rate is faster than expected
- Cash flow feels unpredictable
Startups, for example, often have financing in the mix with locked-in repayment timelines, whether that’s short-term business loans, credit cards, or something else. And missing those payments could mean pricey penalties. If you’re already in a tight cash flow position, adding in something like a hefty late fee only compromises you further.
If all of this is sounding familiar, it’s probably a sign that your company would benefit from implementing a 13-week cash forecast.
You don’t have to do this forever. In fact, you shouldn’t. But you can use this tool to get clarity into how money is coming into and leaving your business. Just as importantly, this kind of focused cash flow analysis gives you the insights you need to best balance those inflows and outflows, helping your startup survive — and, ideally, thrive.
Why 13 weeks
If 13 seems like a random number, remember this: breaking the 52 weeks of the year into four parts leaves you with 13. In other words, each quarter has roughly 13 weeks in it.
Since 13 weeks is about the length of one financial quarter, it makes it easier to factor in expenses that might come up on that basis. If you pay your value-added tax quarterly or make quarterly estimated tax payments, for example, this cash flow model lets you include them neatly.
More importantly, this cash flow model gives you the granularity of seeing cash flow on a weekly basis with the big picture of looking at cash balances over the span of a quarter. This allows you to make the right decisions to help your business make it through its financial pinch. This kind of forecast might help you identify customers who are slow to fulfill invoices, marketing efforts that aren’t returning ROI, or even workforce that isn’t performing.
Leveraging this cash flow model
A 13-week cash forecast requires a fair bit of work. Fortunately, you don’t need to get creative here. There are plenty of 13-week cash forecast templates you can use to guide you.
While this model looks at 13 weeks in its entirety, you shouldn’t wait to do quarterly check-ins during which you fill in your template. Instead, this type of cash flow forecast requires a hands-on approach from people in the startup’s finance function.
Specifically, make a plan to do weekly updates.
Weekly to-dos
Once you’ve found a template you like that factors in what you need to track, schedule a weekly meeting with the appropriate stakeholders. That might mean the company’s founder, their fractional CFO, and their contracted bookkeeper, for example.
At each weekly meeting, go through that week’s line of the cash flow, filling in outflows and inflows.
It’s best practice here to list those outflows in terms of priority. Payroll should usually be your top outflow, for example. Similarly, list inflows based on how likely they are. If a major client has been on autopay for years, they’ll generally go toward the top of the list, for example.
Forecast-based decision-making
As you look at your forecast, you should get visibility into pain points. If areas of improvement aren’t becoming clear on their own, here are a few questions to ask:
- Are there any accounts receivable that could be sped up?
- Are there areas where reducing headcount would significantly improve your business outlook?
- Could you negotiate with any vendors to extend payment timelines?
- Do you have excess inventory that you could liquidate?
- Is your cash flow sustainable or do you need to seek out a new financing source, like an additional investor?
- Could you cut any recurring expenses?
- Could you improve your profit margins for any products or services?
- Do you need to restructure your debt to make repayment more sustainable and affordable?
Talking with finance pros like your investors or your fractional CFO can also help you identify areas for improvement.
Moving past a 13-week cash flow
Cash management is a critical component for any company, from seed-stage startups to global corporations. The 13-week cash flow forecast gives you a way to get into the granular details of cash management, keeping a finger firmly on the pulse of how money is moving into and out of your business. When your runway is limited, this is key.
But you shouldn’t rely on this type of forecasting forever. Ideally, your company zooms out past a quarterly view to plan for long-term, sustainable growth. If getting into your cash management on a detailed level doesn’t help you manage problem areas, it’s a sign you need to make some changes at your company.
An experienced startup finance pro can help you tackle the work of this intensive type of forecasting and identify areas for improvement. Our team is ready to jump in and provide the support you need to get through seasons of limited runway. Reach out so we can get started.