Let’s talk about 13-week cash projections. During these 2020 Covid-19 days everyone is talking about 13-week cash projections and many CEOs are putting them in place. If you’re ready to set one up but not sure how to do it, this blog will help.
I started making 13-week cash projections in the 1980s with my business turnaround clients. Since then, with the exception of 2008, I’ve done far fewer mainly because weekly cash projections are not necessary when we’re not worried about making payroll next week. That said, many successful, growing businesses have severe cash constraints. Growth can do that. So even in good economic times, it can pay to have a detailed cash projection.
The top reason to have a weekly cash projection is to be able to anticipate cash shortfalls weeks ahead so that adjustments can be made to avoid a crisis. Another good reason is to be more in touch with the details of your cash inflows and outflows. Of course, you’re trying to accelerate incoming and delay outgoing as much as you reasonably can (or unreasonably, if you’re in a real cash crunch). By reviewing the details at least weekly you have complete clarity and thus more control.
The projection is typically 13 weeks because it represents a calendar quarter and is just long enough to allow for emergency near term adjustments. Your cash inflows are from accounts receivables and credit card collections. They go to the top of the sheet. Below are your outflows including A/P, payroll, and any expenses that you don’t run through A/P.
Put your “Cash In” details on a separate excel or google sheets tab. If you have regular credit card collections, estimate what those will be going forward and project them out 13 weeks. List your customers one by one, and use your A/R, report to forecast collections in detail for the next 13 weeks. Below A/R collections create a “future sales” section where you forecast sales by customer or customer type and when you expect that “future sale” invoice to be paid. Note that, after the sale is made, you remove the anticipated collection from the “new sales” section because it’s been added to A/R. With the A/R and future sales sections in place, you’re accounting for all collections from all sales, past, and present.
Create a separate sheet (tab) for outgoing cash. Enter the most recent detailed A/P aging and spread future A/P payments across the weekly columns to the right. Below the A/P payment section create a “new purchases” section. This is especially important if you are in manufacturing, distribution, or retail because you are continuing to purchase materials and products. List each vendor and schedule out what you expect to purchase and when you expect to pay. This gives you near term outflows from AP and longer-term outflows from new purchases. (And, of course, as with A/R, when you actually make the future purchase remove the anticipated outflow from the “new purchases” section because the purchase invoice is now in A/P.
Lastly, if you pay many expenses with a credit card, show the expenses as they’re incurred but do not enter them into your Cash Out total until the credit card is paid, presumably monthly. The payment is the total of all the credit card charges you’ve incurred since the last payment.
With the two supporting pages completed you have most of what you need for your overall cash projection. Transfer the Cash In and Cash Out totals from their respective sheets and show them to the top of the main page and calculate the net. Below that enter what’s left: payroll and any non-A/P disbursements like interest and bank fees plus maybe a few items that for some reason you don’t run through A/P or a credit card.
When you have the main page completed you have the inflows at the top and the outflows below that. At the bottom is your weekly net cash for the week and end-of-week cash balance. Whenever you update the sheet, look at what happens to your cash balance farther down the line. Are you still running a positive cash balance in week 8 or 10? If not, go back and adjust inflows and outflows (timing and amounts) to where your cash balance remains positive all the way through. Include in “cash available” whatever line of credit availability you might have.
With your system in place, it’s time to get into a rhythm where every Monday you and/or your team updates the worksheets with actual numbers from the prior week and re-forecast collections and disbursements. After the sheet is updated, gather your cash team to discuss the new results, and to make whatever adjustments are necessary to maintain the positive cash balance you need in the weeks ahead.
Not only will this 13-week cash rhythm help you prevent a future cash crisis which many are currently experiencing with Covid stay-at-home order, but it will also make you feel so much more in control of the most important number on your Balance Sheet: cash. And that’s a truly great feeling!