Most small business failures are cash failures, and most are visible weeks in advance to anyone forecasting cash. The forecast is straightforward and rarely maintained.
Why thirteen weeks
Long enough to see problems with time to act, short enough that the estimates are reasonably reliable.
It is also a quarter, which aligns with most reporting cycles.
Longer forecasts have their uses and are less accurate, since assumptions compound.
What goes in
Opening cash balance.
Receipts by week — customer payments based on invoices raised and expected payment behaviour, not on invoice dates.
Payments by week — suppliers, payroll, rent, tax, loan repayments, everything.
Closing balance, carried forward.
Which is arithmetic, and the difficulty is entirely in the estimates rather than the structure.
The receipts estimate
Where forecasts are usually wrong.
Customers pay when they pay, not when terms say.
Which means the forecast should use observed payment behaviour per customer rather than agreed terms, and that data is in the accounting records already.
New business should be forecast conservatively or separately, since including optimistic new sales in a cash forecast defeats its purpose.
The payments that get forgotten
Tax, which is periodic and large.
Annual insurance renewals.
Quarterly rent and service charges.
Equipment replacement and maintenance.
Which are the items that produce the unexpected difficult week, and they are all knowable in advance.
Listing every payment made over the previous twelve months, and identifying the irregular ones, catches most of them.
Scenarios
A base case, and at least one downside.
The useful downside is generally a major customer paying late or not at all, since that is the most common shock.
Which shows how much headroom actually exists, and it is frequently less than expected.
Maintaining it
Updating weekly, rolling forward one week each time.
Which takes perhaps twenty minutes once established, and the discipline is the entire value.
Comparing the previous forecast against what happened improves the estimates over time and reveals systematic optimism, which everyone has.
What to do when it shows a problem
The forecast's purpose is providing time, and options narrow as the date approaches.
Accelerating receipts — chasing, offering early settlement discounts, taking deposits.
Delaying payments where terms permit, and negotiating where they do not, which is far better received when done in advance.
Arranging finance, which requires time and is considerably easier before the position is critical.
And reducing costs, which takes effect slowly and should therefore start early.
Talking to creditors
Approaching suppliers and lenders before missing a payment produces substantially better outcomes than after.
Which is well established and emotionally difficult, since it involves admitting difficulty.
Tax authorities in many jurisdictions offer arrangements to spread payment for businesses that approach them proactively, and considerably less flexibility to those that do not.
The point
A business that knows its cash position thirteen weeks out has options. One that discovers a shortfall on the day has almost none.
Anyone facing genuine difficulty should take professional advice early, since insolvency practitioners and business advisers can do considerably more when there is time.
Tools
A spreadsheet is entirely adequate and is what most businesses should use.
Accounting software increasingly includes forecasting that pulls from actual invoice and bill data, which reduces the manual effort substantially.
Which is worth using where available, with the caveat that automated forecasts use invoice due dates rather than actual payment behaviour unless configured otherwise.
Seasonality
Businesses with seasonal patterns need a longer view alongside the thirteen weeks.
An annual forecast by month identifies the trough and how much reserve is needed to reach it, which is the planning question a rolling short-term forecast cannot answer.
Building the reserve during the peak requires knowing the figure in advance.
Growth
Rapid growth consumes cash, and a forecast that models growth without modelling the working capital it requires will be badly wrong.
Which is why fast-growing businesses run out of money, and why the forecast should include the stock and debtor increases that growth produces.
Reconciling to actuals
Comparing each week's forecast against what actually happened.
Which identifies where the estimates are consistently wrong, and correcting for that improves accuracy quickly.
Most businesses find they are systematically optimistic about receipts and accurate about payments, which is a correctable bias once measured.
Who should see it
The owner or director responsible for the business, without exception.
Delegating the preparation is fine. Delegating the understanding is not, since the decisions that follow are theirs.
The bank
Sharing a forecast with a lender proactively, particularly one showing a tight period and the plan for it, changes how a request is received.
Which is the difference between a business that manages its position and one that discovers problems, and lenders assess exactly that.
Beyond the spreadsheet
The forecast supports decisions rather than replacing judgement, and the decisions it enables are about timing.
Which is what makes it valuable — a business that knows when it will be tight can act while options exist.