Forecasting Cash Flow

Predicting and managing cash can be one of the most difficult things small businesses do.

If your company is growing, it’s extremely important; we all have seen many growing companies run out of cash due to growing accounts receivable and inventory.  And if your company is not making money, it’s obviously extremely important watching every dollar.  We need to make payroll and keep the business operating.

I like to put in place a couple of process tools that really help any business predict and manage their cash.

The first tool which is essential for most small businesses is to put in place the 13 Week Cash Flow worksheet.  This should be updated, reviewed and revised every week.

The worksheet is simple – it has weekly forecasts for cash receipts and cash disbursements.  The trick twofold:

  • Being able to predict the timing cash receipts
  • Having place holders for planned disbursements

Predicting Cash Receipts

In smaller companies, detail expected payments for all outstanding invoices.  In the most companies, however, due to the size of receivable aging, assumptions must be made based on current expected cash conversion.  Accounts receivable turnover is measured on a weekly basis and strategies are developed and implemented to make improvements.  Small improvements in accounts receivable turnover as a dramatic effect on cash flow. (For example, a $10,000,000 parts distributor with $1,500,000 in accounts receivable, decreasing accounts receivable on average of days 5 days, increases cash approximately $139,000.)


The worksheet needs to contain placeholders for everything.  Bi-weekly payroll, benefits, rent, debt payments, operating and admin expenses, A/P, inventory purchases, cap ex, debt and other payments.  No surprises.

Each week, review the prior week’s worksheet with actual receipts and disbursements and recast the next 13 weeks.

The process is straightforward and over time you get better at your predictions.  Forecasting cash flow in your business makes life much better.  Less stress, more predictability, ability to make commitments, etc.

Download the example of the 13 Week Cash Flow worksheet and put this process in place.


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