- 1Start with current cash position. Bank balances, undeposited funds, anything liquid right now.
- 2Forecast cash inflows by source. AR collections by aging bucket, expected new sales, financing, refunds.
- 3Forecast cash outflows by category. Payroll, AP, recurring software, taxes, debt service.
- 4Build the timeline weekly for 13 weeks. 13-week cash forecast is the standard. Granular enough to act on, far enough to plan.
- 5Add monthly view for months 4-12. Beyond 13 weeks, monthly is sufficient.
- 6Identify the cash trough. When does the lowest balance hit? How low? That's your real runway constraint.
- 7Stress-test the forecast. What if a major collection slips 30 days? What if a deal closes 60 days late?
- 8Update weekly. Replace forecast with actuals, roll the window forward. Stale forecasts are worse than no forecast.
Why cash flow is different from profit
A profitable business can run out of cash. This happens when the timing of cash receipts and payments doesn't align - when you pay your team and your vendors before your clients pay you. The P&L shows you whether the business is profitable. The cash flow forecast shows you whether you'll be able to make payroll next month. Both matter, but for day-to-day operations, cash is what you manage.
The P&L can show profit while the bank account runs dry. This happens when revenue has been earned but not yet collected, or when expenses have been accrued but not yet paid. Cash flow is the actual movement of money, and it is usually 30-60 days offset from the P&L. A company can look healthy on a P&L basis and be in crisis on a cash basis.
This is especially true for product businesses with inventory. You pay suppliers today, hold stock for 60 days, sell it and extend 30-day terms to customers, collect 30 days later. The P&L shows profit on the sale, but the cash is tied up for 120 days. Without a forecast, you do not see the cash crunch coming.
Building a 13-week cash flow forecast
The most useful near-term tool is a 13-week rolling cash flow forecast: a week-by-week projection of cash in and out over the next quarter. Start with your opening cash balance. Add projected cash receipts - based on outstanding invoices and expected new business. Subtract projected cash payments - payroll, rent, vendor invoices, scheduled debt payments. The ending cash balance each week tells you your projected position.
A 13-week cash flow forecast is the most useful planning tool most companies do not have. It shows expected cash in and out for each of the next 13 weeks, ending with the cash balance. Weeks 1-4 should be near-exact (based on committed receipts and known payables). Weeks 5-13 are estimates that get refined each week.
Structure: start with the opening cash balance. Add expected receipts (AR collections by week, expected new sales collections). Subtract expected payments (payroll by week, recurring subscriptions, known AP, estimated tax payments). Ending balance is the opening for next week. When any week goes below your minimum cash threshold, you have a warning.
Updating it regularly
A cash flow forecast is only useful if it's current. Update it weekly: mark what actually happened versus what was projected, roll forward the forecast window, and revise assumptions based on what you now know. A forecast that's updated weekly becomes a reliable operational tool. One that's updated quarterly is a historical document.
Cash flow forecasts get stale in days, not weeks. Each Monday (or whatever day you run it), the previous week's actuals need to be booked, the forecast needs to be rolled forward one week, and any new information needs to be incorporated. If the forecast is not updated regularly, it becomes a theoretical document that does not reflect current reality.
The discipline of weekly updates also forces a weekly conversation about cash. When a new $100K expense is being considered, the first question should be "show me the forecast" not "we have the money." A forecast that is kept current is a decision-making tool. One that is updated sporadically is just a historical document.
Using it to make decisions
The value of a cash flow forecast is the decisions it enables. If you can see six weeks out that you'll have a cash crunch in week eight, you have time to act - accelerate a collection, delay a discretionary payment, draw on a credit line. If you find out about the crunch in week seven, your options are much more limited. The forecast doesn't prevent cash problems; it gives you enough lead time to solve them.
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Decisions a cash flow forecast enables: timing of a new hire, whether to take a bridge loan, when to push on collections, whether to accept a discount from a supplier. Without the forecast, these decisions are made on gut feel or on the current bank balance - both of which can be misleading.
The forecast also changes how you negotiate. When a customer asks for extended payment terms, a forecast lets you say exactly what that costs in terms of cash timing. When a supplier offers a 2% discount for payment in 10 days instead of 30, you can see whether you can afford it. These small decisions compound over a year.
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