When I read articles about finances, it does not take long before I am googling a formula or ratio to refresh my memory on the specifics of how a particular ratio works. I am not a finance guy.
I learned all the financial ratios in college, but that was many years ago and I do not use them daily. I learned to trust my financial advisors to work through the specifics of a company’s balance sheet to come up with the requisite formulas. While these ratios are helpful, they are also backward looking. Like most managers, I am focused on looking forward and solving problems before they occur.
Yet even self-professed non-finance professionals like me need access to strong financial tools to make meaningful, timely decisions. During my years in the turnaround industry, I have come to rely on the 13-week cash flow forecast as my go-to document.
Bridging the GAAP
In these economically uncertain times – the better a company understands how its cash moves, the better positioned it will be to improve capital allocation or take advantage of opportunities available for limited periods of time. While stress can prompt a company to monitor its cash more closely, a company’s cash flow is something that should be monitored in good times and bad.
Create Transparency and Accountability with the 13 Week Cash Flow Forecast
When I work with a company to improve their operations’ overall health, the 13-week rolling cash flow model tells us how quickly we need to move, what our priorities need to be, and ultimately becomes the leading indicator of how well we are executing our plan.
Whether you are an organization in distress or an organization going through a period of stress, if you are not generating positive cash flows, you are on the clock for how long you can survive. Using a 13-week cash flow model should be your tool for significant spending decisions and operational plans.
It helps you decide where you can spend money, who gets paid, and how to deal with unplanned events. It is also your planning tool that tells you when people get paid, how you maintain compliance with your bank or get back into compliance.
Further, it becomes the tool that you use for your commercial discussions with your customers. The 13-week cash flow model cuts through the noise and pinpoints how quickly you need to be paid, and when fully implemented, will quickly point out if you have pricing issues that need to be addressed.
Navigating the 13 Week Cash Flow Forecast
Beginning at the top, each receipt and disbursement line item is supported by either direct file uploads, manual inputs, or assumptions that translate business activity to cash inflows or outflows.
The form continues to drill down further to reflect other cash and capital expenditures, ultimately generating a weekly new cash flow.
You then couple this with a weekly review of the variances between your plan and the actual cash receipts and disbursements. This allows you to better manage the activities of the business and make adjustments to improve the model.
Simple, isn’t it? If we stopped here, management has a clear and immediate understanding of their company’s cash flow for the next 13 weeks, right?
There is more to the story. The report then executes the company’s line of credit calculations. This is very helpful to the non-financial manager because it calculates the amount of credit available to run the company from the bank’s point of view.
The document quickly indicates the planned weekly cash flows and their impact on the line of credit (LOC), generating a new expected line availability. Should the report indicate that there is a potential out compliance situation developing, the management team has time to react and either take alternative measures or develop plans with its lender.
The point is to see thirteen weeks into the future and manage your borrowing capacity.
Communicating the Findings
Arguably one of the more important elements of this 13-week cash flow forecast is communication. Sharing the findings with internal and external stakeholders will allow them to understand how their investments are being protected. This document then becomes a framework for improving liquidity and supporting timely and effective decision-making.
As you can see, a finance or accounting person could spend hours upon hours with the 13-week cash flow forecast, but they do not need to. The numbers, formulas, and links provide endless opportunities to explore the company’s finances. This is a worthy demonstration of the data’s depth and broad appeal, but operational managers do not have that kind of time.
With all the benefits previously outlined, why don’t companies use the 13-week cash flow forecast during normal times? If you ask around, you will find several companies do. It has gained popularity and lends itself as a quick self-check to company leaders. When was the last time you saw your company’s 13-week cash flow forecast?
JACO Advisory Group can help – Contact us today.
A Tailored Solution
At JACO we have teamed up with DWH to provide our clients with a robust 13-week cash flow model. The model breaks out all areas for specialized reporting – checkbook, accounts, customers, vendors, AR, AP, labor expenses, P&L, and others via direct file uploads. Graphical tools are incorporated to help communicate the forecast quickly and easily to all involved. In this way, we are adding the bells and whistles for finance personnel alongside simple reporting for the non-finance personnel. Once up and running, weekly updates take less than an hour to prepare.
Explore our impactful solutions today – Contact us for a free no obligation discussion on how we might be able to help.
When was the last time you reviewed your company’s 13-week cash flow forecast?
Rob has over 35 years of automotive experience, 25 years with Honda of America Manufacturing. His specialty is helping manufacturing facilities turn their operations around.
He has supported companies through bank workouts, cash burn analysis, and developing plans of reorganization to exit bankruptcy. His experience with operations of all types of production facilities gives him a comprehensive proficiency when it comes to addressing unprofitable practices and cultures.
During several new model launches; Rob managed the Marysville Auto Plant’s mass production purchasing department. He was responsible for the supply chain and synchronization of over 4 million parts daily.
Rob is a Certified Turnaround Professional (CTP) by the Turnaround Management Association (TMA).
Rob holds a Bachelor of Science in Business Administration from Ferris State University. He is a senior member of the Society of Manufacturing Engineers and was a Certified Quality Auditor through the American Society of Quality.