The 13-Week Cash Flow Forecast

Written by Sergio Garcia
December 21, 2022

A mission-critical financial report, the 13-week cash forecast helps businesses ensure they never run out of cash. While that sounds simple, running out of money is one of the most common reasons why new businesses close down in the first five years. 

By creating a 13-week cash forecast for your company, you can ensure that you have enough cash on hand to cover your operational expenses and prepare for the unexpected.

“Staying on top of your cash flow will help you see if you’re going to run out of money — and when — so you can prepare ahead of time.” PWC

Simply put, cash forecasts can help paint a picture of an organization’s financial future by predicting future cash flows. While forecasts vary in size and scope they all aim to increase the efficiency of a business’s cash management.

create a 13-week cash flow forecast in trovata

What is the 13-week Cash Forecast Model?

There are a number of variables that go into a cash flow forecast, one of which is duration.

“If you are starting to feel the pinch from new business slowing down, contracts being delayed or workers being kept from doing their core job functions, a well-crafted 13-week cash-flow model (TWCF) will serve as a reality check for all stakeholders and assist in highlighting a logical path forward.” — CBIZ

Why 13 Weeks?

The 13-week forecast allows businesses to predict its cash flow for a full fiscal quarter. 

Why not longer? Typically, the further a forecast extends, the less accurate it will be. 

Finance professionals like to use 13-week forecasts since they allow you to plan ahead while finding a balance between the forecast’s accuracy and strategic value.

What Will a 13-week Cash Flow Model Do for My Business?

While no business wants to see a cash shortage, it can be helpful to know when a shortage will arise. 

It gives the business time to be proactive, taking measures to avoid missed payments, identifying and eliminating discretionary spending, increasing controls over cash, and even exploring financing options.

“Having a robust 13-week cash flow forecast will assist in your communication with the banks and other key stakeholders as it better monitors debt covenants, debt service coverage ratio, cash conversion cycle, and debt capacity.” Deloitte

Why Teams Fail to Properly Forecast Cash

There are always hurdles when it comes to forecasting cash flow — nobody actually has a crystal ball. When teams fail to properly forecast cash, it tends to be for one or more of these reasons:

Difficult-to-use spreadsheets – Love Excel or hate it, you can do almost anything you want with it, but that also means there’s a lot of room for error. Especially when you have multiple people working in the same spreadsheet. How do you know which macros and formulas they used?

Lack of automation – Teams often spend too much time manually entering data into spreadsheets and double checking that it’s correct.

Data wrangled from multiple sources – To properly forecast cash, it’s important to work with data from your ERP as well as your bank portal(s). This can be a major headache as your company grows multiplying the sources of its financial data.

Multiple banks and subsidiaries – It is time-consuming to obtain data across all banks and accounts.

No scenario planning – Teams that forget to plan for a multitude of scenarios fail to be proactive. An essential element of your cash forecast, scenario planning helps assess your capability to withstand disruption and the options you have to identify and respond to potential opportunities.

No variance analysis – The most important and ignored area of cash forecasting is variance reporting. That’s because It’s time-consuming, however, when done right, variance reporting makes you better at forecasting cash flows over time. 

“Let’s get real here, the weatherman isn’t always right either. Yet, there are things you can do to make your life a little less stressful.” — our very own Chris Brown on cash forecasting

inline cta book demo forecast focused a min

Why Create a 13-Week Cash Flow Forecast?

We could all use a little more certainty and risk management in our cash forecasting practices, but there are four highly-impactful benefits of 13-week cash flow forecasts:

  1. Ensure your business is adequately capitalized
  2. Identify and plan for cash shortages
  3. Properly allocate cash surplus
  4. Plan for different scenarios (from best case to worst case)

Ensure Your Business Is Adequately Capitalized 

The goal of managing a direct cash flow forecast is to ensure your business has the cash it needs to cover expenses for specific periods. 13-weeks is usually the standard as businesses want confidence in where their cash is utilized across the entire business.

This allows your organization to quickly pivot and make more informed strategic decisions when new opportunities or threats arrive.

Knowing how much cash you need to meet your short-term obligations, such as payroll, payables, and tax obligations, just to name a few, helps you be proactive with securing the right financing options to meet your business’s cash flow needs.

Instead of being reactive and receiving high-interest, prime loans, you can be more proactive with your bank partners to receive term loans with lower interest rates.

Identify and Plan for Cash Shortages

Seasonality is something every business faces to varying degrees. With seasonality, cash gaps can become more apparent.

Instead of facing these gaps as they arise, a 13-week cash flow forecast helps you spot them before they have any effect on the business, empowering you to make informed, strategic decisions on how to deal with this shortage before it hits.

These potential decisions may come in the form of holding out on acquiring specific equipment before cash clears, providing discounts to encourage clients to pay early, or obtaining short-term financing from your bank partners. 

Understanding your business’s seasonality alongside your typical level of cash reserves ensures that your organization can avoid catastrophic cash shortages and meet your working capital needs throughout the year.

Properly Allocate Cash Surplus 

In some cases, you may find your treasury in the position of having a cash surplus.

Perhaps all your clients have paid their invoices on time, your organization obtained a tax break that you weren’t expecting, or actual sales from the previous quarter exceeded projections.

It is not always to your advantage to keep large cash reserves in low-earning accounts.

Understanding when your organization may have a cash surplus through forecasting helps you make the best investment decisions possible and provides an opportunity to let your capital grow on its own, thus doing the work for you.

Plan for Different Scenarios

Geopolitical threats, navigating a changing economy, emerging growth opportunities, and the consideration of entering new market segments all bring unexpected changes in cash flow. 

Utilizing scenario planning within your cash forecasts can help your organization identify potential unforeseen circumstances in cash management plans that can be implemented quickly as these situations may arise.

Check out our recent episode of Fintech Corner where our CPO & CTO, Joseph Drambarean chats with McKenzie Knudson, Senior Treasury Analyst at Sealaska, about her team’s transition from spreadsheets to the almost magical experience of API-based treasury tech, and how it helped to centralize data, streamline reporting, and significantly improve their forecasting capabilities.

6 Steps to Create a 13-Week Cash Flow Forecast

Here are the steps to build a 13-week cash flow forecast:

  1. Define an objective for your forecast
  2. Tap into reliable data sources
  3. Consolidate historical data points into streams
  4. Determine the most effective way to project future cash flows at a stream level
  5. Monitor, learn, and refine your stream assumptions
  6. Explore running various scenarios in your 13-week forecast

Let’s take a closer look at how you can achieve these steps and what they would look like if you’re using Trovata.

Step 1: Define an Objective for Your 13-Week Cash Forecast

The purpose of your 13-week cash flow forecast is to help your organization better understand what cash you are going to have at specific points throughout a certain period. Still, your forecast objectives may depend on your organization’s size, level of cash reserves, and your company’s strategic objectives.

It’s critical to deeply understand your business’s short-term and long-term strategic objectives to tailor your forecast in accordance. 

What are you hoping to learn from this forecast? Which accounts and/or business entities would you like to include in your model and why? How often do you plan to review and refine assumptions in your forecast?

Here are the most common 13-week cash forecast goals we hear from our customers: 

  • “Enhance visibility into our weekly cash flows.”
  • “Manage the key components driving cash burn.”
  • “Forecast how customer receipts will impact our cash flow.”
  • “Forecast an ending cash balance for the quarter.”

Having a deeper understanding of your organization’s strategic objectives is going to help you paint a picture of what your forecast requirements should be, as the market is always changing. There are always one-off events that could occur throughout quarters such as acquisitions, share repurchases, or other events that can cause large fluctuations to cash outflows.

Communicate with key stakeholders to understand when these unforeseen events could occur, so you can build your forecast to be agile and can accommodate these changes when necessary.

Step 2: Tap into Reliable Data Sources

When it comes to building accurate models, a strong foundation is a prerequisite to success. Typically, treasury teams have a (somewhat manual) process to extract, clean, and normalize data at least once a day from bank portals and ERPs, increasing the potential risk or error. 

We recommend gathering between 6 months to a year of historical balances and transactions to use in a forecast, but the more history, the better.

From your bank data, you’ll want to pull transactions and balances. From your ERP system, gather your receivables and payables.

Step 3: Consolidate Historical Data Points into Streams

After you’ve gathered a reliable repository of transactions and balances for at least the last 6 months, the next step is to categorize the transaction activity into cash flows. 

This could be as simple as categorizing all inflows and outflows or a bit more depth by grouping types of inflows and outflows. 

Common inflow categories:

  • Lockbox/Deposits: Deposits from checks or cash gained from sales
  • Wire transfers: Wire transfers from sources outside the organization
  • ACH: Deposits as a result of batch payments from clients
  • Borrowing: Any cash gained from short-term loans
  • FX: Cash obtained from differences in exchange rates

Common outflow categories:

  • Payroll: Outflows as a result of paying employees
  • Account Payables: Outflows from paying vendors
  • Wires: Outflows via wire transfers to other bank partners or vendors
  • Debt Payment & Debt Maturity: Outflows as a result of paying off debt
  • FX: Outflows as a result of losing cash due to a lower exchange rate

The trick to analyzing all transaction activity and cash flow data is to group your transactions by inflows and outflows, starting with the highest volume account. Then categorize each transaction by its inflow or outflow activity.

cash inflows and outflows
Cash inflows & outflows in Trovata sourced from automatically-updated bank data

Step 4: Determine the Most Effective Way to Project Future Cash Flows at a Stream Level

Some cash flow streams are a lot easier to forecast than others. Start with the predictable streams first, before moving onto the more challenging ones. For example, forecasting office rent may be a matter of factoring in several fixed monthly payments representing each office. 

In Trovata, users can easily “repeat” history for streams with fixed recurring payments.

Other cash flow streams like revenue, vendor payments, and lockbox deposits require assumption based calculations rooted in historical activity to properly project accurate forecasted values. 

A couple of common calculations that are used include:

  • Exponential Moving Average (EMA)
  • Simple Moving Average (SMA)

How to quickly see these moving averages using Trovata’s machine learning technology

Step 5: Monitor, Learn, and Refine Stream Assumptions

At first, it’s best to monitor a new forecast daily in order to evaluate your initial assumptions. 

This can be done most effectively by comparing your forecasted values to your actuals at a stream level, given that your data is being appropriately refreshed with reliable actuals. 

cash flow tags for cash flow analysis
How Trovata tags transactions for you and uses AI to analyze cash flow.
Trovata AI monitors, learns, and refines assumptions for you

Step 6: Explore Various Scenarios in Your 13-Week Forecast

After you’ve established a “base” 13-week forecast, we recommend duplicating this forecast in order to test different scenarios. Scenario planning is a critical component of risk management, but building and running dozens of models manually is nearly impossible and incredibly time-consuming.

That’s why we built Trovata — to, among other things, automate cash flow forecasting.

13-Week Cash Forecasting Tools

For those just getting started, the easiest way to create a 13-week cash flow forecast is with a cash flow forecasting Excel template.

Once you’ve found and downloaded a template, you will want to compile your data. Depending on your preferred forecasting method, this could be anything from a list of company transactions to financial statements.

Once you begin to generate forecasts, you will want to continually check them against the actual data and adjust the models as necessary. Consider adding more transactions or historical data trends into the forecast to increase accuracy.

While Excel can be an excellent tool for generating a forecast, it is a highly manual process often vulnerable to user error. If you are looking for a less manual and more accurate forecasting solution, turn to Trovata.

compare daily forecasts with actual transactions

Trovata’s automated cash management platform automatically collects cash data across all your banks and accounts, then leverages that data to create custom cash forecasts. Trovata also applies machine learning algorithms to analyze and integrate historic data trends into the forecast, improving accuracy.

How to Use Trovata for Fast and Accurate 13-week Forecasts

Trovata’s forecasting solution is built to accommodate everything from a single account cash flow projection to a full global cash forecast broken down by business entity. 

We do the heavy lifting for you by integrating directly with your banking partners and automating the collection, normalization, and storage of balance and transaction activity as it happens. This is possible due to our library of secure, open banking APIs.

Removing this burden for our customers gives them back several hours of manual work, and gives them access to a secure and accurate data lake that can be used for forecasting and report building.

Getting Started with a 13-week Cash Forecast in Trovata

Decide on the scope of your forecast by selecting one or more accounts that align with the objective of your 13-week forecast. If your objective is to forecast just your US entity, then you’d select the accounts associated with that entity.

The Forecast Data Streams feature allows our users to add one or more cash flows to a forecast. Traversing your transaction data and categorizing cash flows is as easy as a Google search with Data Streams. We have four types of Forecast Data Streams:

  • Machine Learning
  • Manual (CSV upload)
  • Repeat History
  • Invoice Data
use bank apis to get data from bank of america, pnc bank, deutsche bank, jp morgan, us bank, wells fargo, and more into trovata.

We provide an automated feed of actual transactions directly from your banking provider that are seamlessly appended into the applicable forecast stream, so that you can focus on managing forecast assumptions and not waste time manually pulling, cleaning, and updating your model with different formats of downloaded transactions.

Each stream can be added to one or many forecasts. You can also upload a stream to capture activity outside of your Trovata instance. 

Machine Learning in Cash Forecasting

We leverage Machine Learning to analyze your historical data and give you four distinct options to choose from at a stream level. 

Trovata currently produces four distinct forecasts for a given stream and allows you to decide which one fits best for your needs. The 4 models and their characteristics:

  • Trovata ML Model 1 – Accurate and fast, meshes well with weekly seasonal trends but poorly on stock-like graphs, built from multiple regressors.
  • Trovata ML Model 2 – Meshes well with general seasonal trends but poorly on stock-like graphs, built from multiple regressors.
  • Trovata ML Model 3 – Great at weekly, monthly, and quarterly seasonal trends, performs poorly on stock-like data, built from lagged based regressors.
  • Trovata ML Model 4 – Works well for arbitrary stock-like data, performs poorly on fluctuating seasonal trends, built from a system of neural networks.

Scenario Planning with Trovata Cash Forecasting

The flexibility of our forecasting tool encourages on-the-fly scenario testing, which is important to understand how various impacts to cash flows and market conditions may impact the overall health of a business. 

Our Duplicate feature is helpful to test different scenarios without impacting your base forecast. Factors can be added at a stream level to test different scenarios in your forecast.

Get Better Cash Insights to Drive Better Decisions

When done right, cash forecasting helps your team be prepared for whatever scenarios it might face in the future, mitigating the disastrous effects of unforeseen events like a pandemic on your business operations.

sealaska quote: "we were all manual. we used a spreadsheet that would roll forward every month and we'd update it daily with cash balances. we spent hours logging into various portals, put in the new cash balance, and then manually looked for any decreases in cash or known one-offs to try to project where we'd be. but we were only looking at it for maybe the next week or month. we weren't looking out into the future and we also were only looking at it at our top corporate level where we own over. 30 subsidiaries." mckenzie hudson, senior treasury analyst at sealaska corporation.

We may be biased, but the key to creating a fast and reliable forecast quickly is to use a cash forecasting platform that makes the process seamless. 

That’s because, without a platform like Trovata, if you want to run a scenario analysis or generate a forecast, you have to start with a clean data set every time. You’d have to go into every single one of your bank portals, consolidate your transactions and balances, and place them in one spreadsheet, hopefully without any errors. Time to try a better way to forecast cash flow, using automation and machine learning.

Curious to see it in action? Book a demo today.

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