A practice not commonly followed by many companies, but done by some very good ones, is having a 13 week rolling cash forecast.  The companies that do this get a feel for how their cash flow will roll out during the next quarter.

Why don’t more companies do this?  Well, it’s the value added part of finance.  It’s moving finance from being a thermometer to being a thermostat. 

It does take time, but there are some great benefits to it:

1.  You get to uncover potential shortfalls.  By seeing this, you can take some action ahead of time.  See a cash squeeze coming up six weeks from now, what can you do to accelerate some collection?  Or, is there some productions in shipment that can be stepped up?

2.  It gives you time to fill in the gaps.  In particular, one way to fill in the gap could be through having a line of credit.  But through the cash forecast you can also make sure that you have a credit still available, that you have not tapped it out at the particular point in time.

3.  You also can plan for more major events that come up.  By not having a 13 week forecast, companies are often going by the seat of their pants week by week.  But some significant items can come up once a quarter or so.  One in particular could be the quarterly income tax deposit.  Another might be quarterly payments for unemployment insurance or general liability if you’re set up on that term.

4.  It helps you setup targets and you get sharper at managing your cash.  Without a cash flow target, you just sort of have cash sitting in the bank account.  But suppose you have a quarter million in the account; is that the number that you intended it to?  What if it should’ve been more like a half million and by not growing to a higher level you might be facing a cash squeeze in a couple weeks?  By having a cash flow target you can monitor how you’re doing week by week against the forecast.  You can anticipate when things might be shifting, such as having a slowdown in your accounts receivable.

So go through the exercise of having the 13 week rolling cash forecast.  At the start of the next week see how you did against the past weeks forecast.  Make the forecast for the next new week 13 weeks out into the plan.  As you do this, you’ll get tighter in your estimating and you should find shorter variances over time.

Do the 13 week cash forecast and you’ll find yourself better at controlling cash in your future, rather than cash hit you by surprise and controlling you.

Jon Paul, MBA, CPA, CMC, CM&AA

President, Value Added Finance Resources
Bringing new insights on results and maximizing company value