How to build a 13-week cash flow forecast

Most owners know roughly what their bank balance will be next week. Far fewer know what it will be in week nine, after two payrolls, a quarterly HST remittance and a slow-paying customer. That is where cash surprises come from, and a 13-week forecast is the standard tool for seeing them early.

This guide explains what the forecast is, what goes into it, how to build one step by step, and how to use it to make decisions. You can build it in a spreadsheet in an afternoon. Keeping it accurate is a weekly habit of about thirty minutes.

What a 13-week cash flow forecast is

13-week cash flow forecast

A 13-week cash flow forecast is a rolling, week-by-week projection of the cash a business expects to receive and pay out over the next quarter, starting from the actual bank balance and ending with a projected closing balance for each week.

It differs from a budget in three ways. It deals only in cash, not revenue and expenses. It works in weeks, because payroll and supplier runs happen weekly or every two weeks. And it rolls: every week you drop the week that has passed, add a new week at the end, and update everything in between.

Thirteen weeks is one quarter. It catches every regular cycle in the business at least once: payroll, rent, loan payments, monthly or quarterly HST, corporate instalments and the month-end supplier run. Beyond about a quarter, week-by-week detail becomes guesswork, and a monthly forecast is the better tool.

It also complements accrual accounting rather than replacing it. As our guide to cash vs accrual accounting explains, accrual books show how the business performed; the forecast shows whether the bank account can carry it.

What goes into the forecast

Every line is a cash movement, placed in the week the money actually moves. The usual structure:

• Opening cash. The actual bank balance at the start of week one, across all operating accounts.
• Customer receipts. Open invoices placed in the week each customer realistically pays, plus expected new sales and when they will be collected.
• Payroll. Net pay on each pay date, separate from the source deductions.
• Source deduction remittances. For a regular remitter, CRA's due date is the 15th of the month after the pay date. Larger remitters remit more often.
• Suppliers and subcontractors. Bills placed by their payment terms and your normal payment run.
• Fixed costs. Rent, insurance, software, leases and loan payments on their actual dates.
• HST. For monthly and quarterly filers, the return and payment are due one month after the end of the reporting period.
• Corporate tax. Instalments are due on the last day of each month, or each quarter for eligible small CCPCs, plus any balance owing after year-end.
• Owner draws and one-offs. Dividends, equipment purchases, deposits received or paid.
• Closing cash. Opening cash plus receipts minus payments. Each week's closing becomes the next week's opening.

The forecast is only as good as the receipts line. Forecast when customers actually pay, using their history, not when your invoice terms say they should.

How to build it, step by step

1. Start from the bankUse today's actual cleared balance as week one's opening cash. Do not start from the ledger if it is behind.
2. Lay out the calendarSet up 13 weekly columns with their dates. Mark pay dates, the 15th of each month, month-ends, rent and loan dates.
3. Place open receivablesGo through the receivables aging customer by customer and put each invoice in the week you expect to be paid, based on how that customer actually pays.
4. Add expected new salesAdd sales you expect to invoice in the period, shifted by your typical collection time. Be conservative.
5. Place open payables and recurring costsPut supplier bills in the week you plan to pay them, then add payroll, remittances, rent, loans and other fixed costs on their dates.
6. Add taxPut HST, source deductions and corporate instalments in the week they are due, not the month they relate to.
7. Set a minimum cash lineDecide the lowest balance you are comfortable holding and flag any week that falls below it.
8. Review and roll weeklyEach week, replace the past week with actuals, note the variances, add week 14 and update everything in between.

A worked example

Here is an illustrative example for a hypothetical service business, showing the first six of its 13 weeks. It pays staff every two weeks, remits source deductions on the 15th, pays rent at the start of each month and files HST quarterly. The owner wants at least $40,000 in the bank at all times.

Nothing here is unusual: a payroll, a rent payment and a quarterly HST remittance land in the same week. But week 5 closes at $31,500 and week 6 at $39,500, both below the owner's $40,000 line. Seeing that five weeks out leaves time to act: chase two slow customers, move a supplier payment by a week, or arrange an operating line before it is urgent.

Over the six weeks, receipts total $168,000 and payments $213,500, a net outflow of $45,500. The business may well be profitable over the same period. The forecast simply shows when the cash moves.

Keeping it accurate: the weekly routine

A forecast built once and left alone is wrong within a month. The value comes from the weekly roll:

• Replace the past week with actuals from the bank, line by line.
• Compare forecast to actual. Note the biggest differences and why. Late customers and forgotten payments are the usual causes.
• Adjust your assumptions. If a customer pays three weeks late every time, forecast them that way.
• Add a new week 13 so you always see a full quarter ahead.
• Read the lowest week first. The closing balance in the weakest week is the number that matters.

Keep the forecast close to the books. If receivables and payables are current from a monthly close, building receipts and payments takes minutes. If they are not, the forecast exposes that quickly.

Using the forecast to make decisions

The forecast turns cash from a worry into a set of decisions you can time. Common uses:

• Hiring. Add the new payroll and remittances and see whether the low week still clears your minimum.
• Equipment and owner draws. Pick the week a large payment does least damage.
• Collections. Rank customers by the effect their payment has on your weakest week.
• Financing. A lender is far more comfortable with an owner who can show when and why a line will be drawn and repaid.

For a longer view, our cash runway calculator estimates how long your cash lasts, and the cash conversion cycle calculator shows how much cash is tied up between paying suppliers and collecting from customers. Building and running a rolling forecast is a core part of our fractional CFO work. If you would like a partner to set one up with you, you can get in touch.

Questions

This guide is general information for Ontario businesses, not advice for your situation. Rules change; talk to us before acting on it.