When you don't have a cash flow plan or process in place, your business can face serious risks that may not be immediately obvious.
As I like to put it, there are two typical scenarios: the visible crisis where you're operating in a reactive state, constantly putting out fires and uncertain if you can cover expenses, and the more dangerous "sleeping giant" where everything seems fine on the surface — you're paying bills on time and making payroll — but you have no visibility into what your cash position will be 12-24 months down the road.
This lack of foresight is where many businesses get blindsided. They discover too late that they're going to run out of money, leading to last-minute financial stress and missed opportunities. That's why having a proper cash flow planning tool is essential.
Enter a 13-week cash flow model.
These short-term models give you a granular view of your cash flow and allow you to spot problem areas early on. The result? You can make better decisions based on your liquidity, optimize your cash flow, and allocate cash in a way that helps scale your business.
The thing is, for the average small business owner, flushing one out is a lot easier said than done.
That's why we're showing you how to build a 13-week cash flow model so you can make smarter decisions for your business.
Here's the TL;DR or keep reading below!
Steps for building a 13-week cash flow model
1. Assign a Leader
The first step in building a 13-week cash flow model is determining who will manage it. This person will update the model, analyze and adjust the numbers, and communicate insights to other team members.
Whoever you assign as the leader needs to be someone who possesses an analytical mind, pays close attention to detail, and is a skilled communicator.
Typically, this responsibility falls to a full-time or fractional CFO, but other members of your in-house or outsourced finance team can handle it if they have the right skill set.
2. Compile Data
Gathering all the data you need to input into the cash flow model is one of the most labor-intensive parts of this process.
The more information you have to inform the model, the better, so gather current and past:
- Cash flow statements
- Balance sheets
- Income statements
- Bank statements
- ERP systems data
- Accounts payable and account receivable ledgers
Remember to include financial data from other cross-functional teams.
3. Get a Template
You could try to make a 13-week cash flow template from scratch, but (unless you’re familiar with them) you would eat up an entire day and still potentially leave things out. You’re better off finding an existing template to use.
Make sure that the template you choose includes areas to document cash inflow, outflows, and net cash flow. You'll break down each section into weeks with specific days and spend categories.
Try this free 13-week cash flow template as a place to start.
4. Make Your Predictions
You aren't just plugging in numbers to a template. You're using this information to make assumptions on your future cash flow.
Use the data you gathered to make assumptions about what you think inflows and outflows will look like, and document those predictions to compare to actual cash flow each week.
5. Review the Model Weekly
At the start of each week, update and review your model and cash flow numbers. Compare your actual results to the predictions you made, and adjust future week predictions accordingly if the numbers don’t closely align.
It's important to note that you shouldn't wait until the end of the 13 weeks to update your model. For most businesses, we recommend updating the model every two weeks or at minimum monthly, as cash positions can change rapidly. If you have clients who frequently deviate from payment terms or if your business experiences quick shifts in expenses, you’ll need even more frequent updates.
When you update your model, be sure to incorporate your actual results as they come in. If you expected a large payment in week one but it didn't arrive, move that expected income to the appropriate future week. These regular updates ensure that weeks 2-13 of your forecast remain accurate, giving you a reliable rolling 13-week view at all times.
6. Use Results to Inform Decision-Making
Let what you're seeing in your 13-week cash flow model influence your business decisions. Your cash flow model is an invaluable strategic tool that can help with specific decisions, not just general financial health.
Based on your results, allocate cash to other parts of your business, optimize your cash flow, and identify areas of poor cash flow management and correct them. For example:
- Timing of major purchases – Maybe you can't afford that new equipment in March, but your model shows you'll have sufficient cash in May. The model helps you plan these expenditures with confidence rather than guessing.
- Negotiating with vendors – When your model shows a potential cash crunch, you can proactively reach out to vendors to negotiate extended payment terms. Being able to say "We can't pay you this week, but based on our forecast, we'll have the cash in three weeks when our customer payments arrive" is much more effective than simply missing payments.
- Hiring decisions – Your model can tell you exactly when you can afford to bring on new team members, ensuring you don't overextend your payroll obligations.
7. Share Results Regularly
Especially when the results of your cash flow model require you to make strategic changes within your financial operations and overall business, you need to communicate them to the proper parties. At least at the end of each month, share the results with your stakeholders, executives, investors, and lenders.
You should also ask yourself and those parties certain questions that can influence how you update the model and manage cash flow moving forward. Get answers about sales projections, operating expenses, inventory management, and contingency plans in case of emergencies.
Mistakes to avoid when building your model
A lot of factors go into 13-week cash flow forecasts. It's not surprising that you could make one or two mistakes along the way. You just have to make sure you correct them before they stay in place too long.
1. Using inaccurate or incomplete data
With so much data to input into your cash flow model, you might be tempted to leave a few things out so you don't get too into the weeds.
However, if you're using inaccurate data or not including enough data in the model, you won't be able to make proper predictions or get accurate results.
2. Not varying your analysis
Cash flow models are not “set it and forget it” financial planning tools. Consistently compare your prediction to actual results and pivot when numbers aren’t matching up.
Without varying your analysis, you won’t be able to make decisions based on sound financial data — you’ll just be inputting numbers into a spreadsheet.
3. Forgetting a contingency plan
All it takes is one surprise to take your cash flow from healthy to barely hanging on.
When you’re plugging all your inflows and outflows, make sure you’re also setting aside funds to cover unforeseen expenses in the face of an emergency. You should also establish plans for how to handle different surprise scenarios, such as needing new staff or replacing equipment.
4. Building the model manually
Building a 13-week cash flow model and entering all of your financial data by hand can take way longer than you might expect. That doesn't even include the time spent double and triple-checking numbers or updating the model each week.
Even after all that effort, there could still be mistakes that skew your results.
5. Keeping quiet about results
Your results shouldn’t be a secret. You need to share your findings to show the value of your efforts and get input from other key people within your business so you reduce financial risk and get everyone on the same page as you move forward.
6. Ignoring what the model tells you
One of the biggest mistakes businesses make is creating a cash flow model but then ignoring its guidance when it tells them something they don't want to hear.
If your model indicates you can't afford a new hire or piece of equipment, don't cover your eyes and proceed anyway. The purpose of the model is to prevent financially damaging decisions, not to confirm what you already want to do.
The model only works if you're committed to following it. When you build discipline around adhering to what your cash flow model is telling you, you'll avoid the financial troubles that come from wishful thinking or emotional decision-making.
Don’t muck up your models
When cash flow models play such an important role in understanding your liquidity and influencing your business decisions, you need to do everything you can to make sure they’re as accurate and robust as possible. That’s where we can help.
When you partner with Hiline for accounting and FP&A services, you get an extension of your team as we work together to map out your financial future. Our HilineOS system gives you expert financial guidance with cutting-edge technology so you can manage your cash flow and financial operations, end-to-end.
See how you can use our financial expertise to solve your financial headaches.
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