Julius Talley.jpg
Article by Julius Talley, CFO, and
Steering Committee Member, The
Chicago CFO Leadership Council

Insufficient cash is one thing that can threaten continuation of any business’ operations. Every business needs enough cash to start and sustain operations. Watching cash flow is critical to all businesses, no matter the industry or how long it’s been in operation.

Your business can be Software as a Service (SaaS), oil & gas, manufacturing, wholesaling, a retail, education or health care. It matters not, managing cash is a must!

The 13-week cash flow will help you predict cash for one fourth of a year. If used all year it will cover four 13 week periods (i.e. 13 week x 4 quarters). The 13-week cash flow report seeks to predict cash receipts or collections and cash payments or disbursements. 

The Mechanics

Beginning Cash Balances

Cash Flow.jpgObtain your cash from your online bank statements at the start date of your report less any checks that have not yet cleared the bank (i.e. outstanding checks) plus any deposits not showing on the online statement. Be sure to use all bank accounts (i.e. general, payroll, etc.)

Cash Receipts

Estimate cash expected to be received from normal business operations. The usual inputs will include collections on accounts receivables and cash sales. The key is to look 13 weeks down the road and put the expected cash in the proper week it is expected to be received.

Other receipts that are not from normal operations such as business income tax refund, sale of business assets, etc. should be included in the report. You may want to separate them into an “Other receipts” category or aggregate them with all receipts.

Cash Payments (Disbursements)

Estimate cash payments for normal business operations. Cash payments should have less variability than cash receipts. For example, your occupancy expenses such rent/mortgage payment, utilities, property insurance, lease payments, and payrolls are more constant. Also include estimated payments to vendors, payments on credit cards and any other debts.

As with cash receipts, you may want to have non-routine disbursements in a separate category call “other”.

Tip: Separate Disbursements into Fixed, Variable or Discretionary

Your payments can be subcategorized into fixed, variable and discretionary.

Fixed payments are those that will occur regardless of business volume such as rent or mortgage payment, utilities, etc. Include your minimum level of payments on payroll including withholdings that have certainty of occurrence.

Variable payments are those that will likely occur with a certain volume of business

Then there are discretionary expenditures. These are “like to haves” if you expect to run a cash surplus after deducting fixed and variable payments from total cash receipts.

Net Cash Increase or (Decrease)

The moment of truth has arrived. Are you cash flow positive or as a lender/investor would say are you “Cash flowing”? Does your beginning balance plus estimated cash inflows less your expected cash outflows come to a positive or negative number every week? Positive numbers are certainly great to have but do not rest on there. Focus on ways to continue to increase them to be able to defend against downturns. If you are not cash flow positive every week, you will see where adjustments can be made. Look first to discretionary, then to variable outflows. Can you accelerate the collections on accounts receivables or other sources? This is a good time to think of external financing such as a line of credit.

Did you estimate purchase of equipment or software for cash? You may consider using lease financing to have much smaller outflows then one or several bigger chunks. In addition, a good time to seek working capital financing is when you do not desperately need it.

Final Thoughts on Getting Started

So how do you start with valid estimates? I would recommend looking back at a past 13-week period and schedule out what actually happened. As history is a good teacher, you can see all of the cash inflows and outflows from your bank statements. You may consider a similar 13-week period that will mirror the same period that you plan to estimate. Seasonality may affect your results or a similar growth initiative. The most important thing is to get started. You will be amazed at the control you will have over your business and you will sleep better.

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About the Author:

Julius Talley.jpgJulius Talley, CPA, MBA has served as a turnaround and consulting CFO to health care entities in Michigan, Florida, Georgia, and Illinois. He advises clients on matters of strategic financial planning and execution to achieve strategic initiatives. He is also a steering committee member with our Chicago Chapter.  Follow him at https://www.linkedin.com/in/juliustalley/ or @juliustalley