How a 13-week cash flow model can help your business weather economic uncertainty

How a 13-week cash flow model can help your business weather economic uncertainty

Recession or not, we have the resources to help your business navigate this moment of rising interest rates, labor shortages, flat inflation and slow growth. We’ve put together our Agility & Excellence Resource Center to bring you strategies and solutions with your finger on the pulse of what’s next.

The winds of economic change are blowing through 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 difficult for companies to maintain cash flow and meet their obligations. During these financial stresses, it is more important than ever for companies to be strategic and innovative in maintaining liquidity or risk being left behind.

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

How TWCF can help

During times of unpredictability, businesses often find themselves grappling with a cash flow crunch that can lead to concerns about meeting payroll obligations or the ability to pay vendors according to payment terms. In such difficult times, turning to TWCF is a reliable solution, as it reduces the impact of unpredictability and prepares the company to deal with future uncertainties.

When it comes to cash flow forecasting, many companies typically forecast cash flows throughout the year. However, this approach likely does not provide the necessary level of knowledge about the financial health of the company in the short term. The TWCF provides a narrower, more immediate view, enabling businesses to determine whether they can meet their financial obligations, including payroll and invoices, in the short term. It also provides a current picture of a company’s revenues and expenses, enabling leaders to meet their financial needs and make more informed decisions.

For companies whose borrowing base is tightly managed by the lender, the TWCF can be particularly useful in identifying potential covenant violations. By forecasting receivables and inventory levels on a weekly basis, TWCF can alert businesses to potential cash flow shortfalls and help them proactively meet financing needs. When sales are unpredictable, TWCF can provide valuable insights into expected 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, businesses can continue to use this financial planning tool by creating a rolling 13-week forecast until their financial distress is resolved.

How to start

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

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

Once a company converts its current sales backlog into a sales forecast, the next critical steps are to forecast accounts receivable collections and determine the company’s cash needs for the next 13 weeks. This requires identifying recurring weekly or monthly cash expenditures and evaluating how the organization views monthly payments and vendor relationships.

Automation can be an effective tool on the receivables side, for example, 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 they approach vendor relationships to bridge the cash flow gap, exploring options such as payment plans, extended payment terms, or alternative suppliers. While protecting vendor relationships is essential, it is equally important to maintain transparency and share the right amount of information with vendors to achieve the desired outcome.

Evaluating a TWCF requires careful consideration of all expenses, including lump sum payments that may only be applicable once or twice a year (i.e. insurance premiums, property taxes, etc.). Businesses may find it beneficial to pay these expenses monthly or quarterly rather than an annual lump sum to better manage their cash flow. Carefully reviewing bank statements is essential, as well as exploring options to extend payments and improve cash flow.

Where do I go from here?

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

By using the model in conjunction with long-term forecasts, companies can ensure they can manage seasonal fluctuations in working capital needs while keeping vendors informed. Few other financial instruments offer this level of visibility. By using the model regularly 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 are looking to stabilize and improve your organization’s cash flow or if you are asked to do so by your lender or other stakeholders, you don’t have to navigate the process alone. You can have your TWCF conducted 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 are well-equipped to provide you with the guidance and support you need to achieve your financial goals. Contact us today.

Copyright © 2023, CBIZ, Inc. all rights are save. The contents of this publication may not be reproduced without the express written consent of CBIZ. This publication is distributed on the understanding that CBIZ does not provide legal, accounting, or other professional advice. The reader is advised to contact a tax professional before taking any action based on this information. CBIZ assumes no responsibility whatsoever in relation to the use of this information and undertakes no obligation to inform the reader of any changes in tax laws or other factors that could affect the information contained herein.

CBIZ MHM is the trading name of CBIZ MHM, LLC, a national professional services firm providing tax, financial and consulting services to individuals, tax-exempt organizations and a wide range of public and private companies. CBIZ MHM, LLC is a wholly owned subsidiary of CBIZ, Inc. (NYSE: CBZ).

(tags for translation) 13 Week Cash Flow

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