Why implementing a 13-week cash flows forecast will improve your operations

If there is one thing the pandemic has taught us and that is that many small businesses aren't built to withstand major disruptions to revenue. 80% of firms reported that pandemic-related business challenges impacted the owners’ personal finances according to a Small Business Credit Survey conducted by the Federal Reserve Banks in 2021.  

When a small business faces a cash flow crisis it is often the owner that dips into their own funds to make ends meet. In the same survey 62% of firms reported they used personal funds to address their financial challenges, with 51% resorting to paying business expenses with personal funds. 

It makes sense that managing your cashflows will give your business a competitive edge. 

Why do I need cashflows?

Even in a profitable business there will always be times when your outgoing cash exceeds receipts from clients. What you don't want to see is a pattern of negative cashflows from operations - this will indicate there are other factors to consider.  During a cash flow crisis most business owners will attempt to analyse in their head. Putting a formal system in place is probably the single most effective measure you can take to improve your business as it will most likely uncover problem areas before they can affect operations. 

How much cash should I have?

As your business grows so may your working capital needs. Using such metrics as your current ratio (current assets - current liabilities) and factoring in some risk management will give you an indication of how much cash you should keep on hand.  Please look out for our upcoming articles on both of those subjects.

13 Week Cashflows

1. Keep track of spending
2. Improving the speed of collections
3. Uncover issues before they arise
4. strategic short-term financial decisions
5. Very Little Forecasting

Why 13 weeks?

13 weeks is simply a handy way of separating the year into financial quarters. It is just not feasible to forecast at such a detailed level beyond that. Forecasts at weeks 12 or 13 are not as accurate as weeks 1 or 2. The 13 week spreadsheet is a rollover report updated weekly. So at the end of week 1 your will drop that week and add another week at the end.