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The winds of economic change are blowing in the business world, and they are not gentle breezes. Inflation and interest rates have continued to rise, and whispers of a recession persist, making it challenging for companies to maintain cash flow and meet their obligations. During this financial strain, it's more crucial than ever for companies to be strategic and innovative in maintaining liquidity or they risk falling behind.

During such periods of economic unpredictability, a carefully planned 13-week cash flow model (TWCF) can be a valuable tool for C-suite leaders to communicate with stakeholders by offering insight into a company's current financial position and shedding light on the next steps.

How a TWCF Can Help

During times of unpredictability, companies often find themselves grappling with a cash flow crisis that can lead to concerns about meeting payroll obligations or the ability to pay vendors in accordance with payment terms. In such times of distress, turning to a TWCF is a reliable solution, as it minimizes the impact of unpredictability and prepares the company to navigate future uncertainties.

When it comes to cash flow forecasting, many companies typically forecast by the year. However, this approach likely doesn’t provide the necessary level of insight into a company's short-term financial health. A TWCF offers a narrower and more immediate view, enabling companies to determine whether they can meet their financial obligations, including payroll and bills, in the short term. It also provides a current picture of the company's revenue and expenses, empowering leaders to address their financial needs and make more informed decisions.

For companies that are tightly managed to a borrowing base by a lender, a TWCF can be particularly helpful in identifying potential covenant violations. By forecasting receivables and inventory levels on a weekly basis, a TWCF can alert companies to potential shortfalls in cash flow and help them proactively address funding needs. When sales are unpredictable, a TWCF can provide valuable insights into anticipated accounts receivable and inventory levels, enabling companies to adjust their strategies and make informed decisions about the best course of action.

After completing the initial TWCF, companies can continue utilizing this financial planning tool by creating successive 13-week forecasts until their financial distress has been resolved.

How to Get Started

While the concept of a TWCF forecast may seem straightforward — mapping out all the sources and uses of cash over the upcoming quarter — the execution is often more complex. After all, analyzing large customers and suppliers individually requires significant attention and detail.

Companies should review their current sales backlog and understand their sales cycle to begin the process. Additionally, they should evaluate lead times for purchasing and production and gain insights into how customers typically pay their bills.

Once a company has converted its current sales backlog into a sales forecast, the next critical steps are to forecast the collection of accounts receivable and determine the company's cash needs for the upcoming 13 weeks. This requires identifying recurring weekly or monthly cash expenses and evaluating how the organization views monthly payments and vendor relationships.

Automation can be an effective tool on the receivable side, for instance, by implementing systems-driven email reminders to encourage prompt payment. However, automation may not be the right approach for the payable side. C-Suite leaders must carefully consider how to approach vendor relationships to bridge the cash flow gap, exploring options such as payment plans, extended payment terms, or alternate suppliers. While protecting vendor relationships is essential, it's equally important to maintain transparency and share the right amount of information with vendors to achieve the desired outcome.

Evaluating a TWCF requires carefully examining all expenses, including lump-si, payments that may only be applicable once or twice a year (i.e. insurance premiums, property taxes, etc). Companies may find it beneficial to pay these expenses monthly or quarterly rather than in an annual lump sum to manage their cash flow better. Reviewing bank statements carefully is essential, as well as exploring options to stretch out payments and optimize cash flow.

Where Do I Go from Here?

A TWCF is a versatile tool that can offer significant benefits beyond its use during financial distress. Once companies have developed the expertise to use the model effectively, it can become a valuable addition to their dashboard, providing critical insights into short-term cash flow needs.

By using the model in conjunction with a long-term forecast, companies can ensure that they can manage seasonal fluctuations in working capital needs while keeping their vendors informed. Few other financial tools offer this level of insight. By regularly using the model and adding it to their financial planning and analysis toolkit, companies can enhance their financial management capabilities and position themselves for long-term success.

We Can Help

If you're looking to stabilize and improve your organization's cash flow or are required to do so by a lender or other stakeholder, you don't have to navigate the process alone. You can have your TWCF performed by a trusted partner. Our team of financial experts is here to help. With years of experience and a proven track record of success, we're well-equipped to provide you with the guidance and support you need to achieve your financial goals. Contact us today.

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