The 13-week cash flow forecast, and why it changes how you run the month

Most businesses that close their doors were profitable on paper somewhere in the final year. They ran out of cash before they ran out of customers, and usually with very little warning.

A profit and loss statement tells you what you earned. It does not tell you whether you can cover salaries on the 25th. The gap between those two questions is where a rolling cash flow forecast earns its keep.

Why thirteen weeks

Thirteen weeks is a quarter, which is long enough to see a VAT payment, a payroll run and a seasonal dip coming, and short enough that you can still do something about them. Beyond a quarter you are guessing. Inside a month you are reacting.

The other advantage is arithmetic. A quarter's view catches the compliance payments that tend to ambush smaller businesses: a VAT201 in one month, provisional tax in another, an annual insurance premium landing in the third.

What goes in it

Keep the structure simple. One row per category, one column per week, opening balance at the top and closing balance at the bottom.

• Opening bank balance. The actual figure from your bank, not your accounting system.
• Receipts. Customer payments, by expected date rather than invoice date. If a client habitually pays at 60 days, forecast 60 days.
• Payroll. Net salaries, then PAYE, UIF and SDL separately, because they leave on a different date.
• Suppliers. Split the ones you must pay to keep trading from the ones with room to negotiate.
• Tax. VAT, provisional tax and any arrangement with SARS.
• Everything else. Rent, insurance, subscriptions, loan repayments, owner drawings.

Owner drawings belong in the forecast. Leaving them out is the most common way an otherwise careful forecast turns out wrong.

Forecast by when money moves, not when it is earned

This is the discipline that separates a forecast from a budget. An invoice raised on 30 September for a client who pays at 45 days is a receipt in the second week of November. Recording it in September makes the forecast comfortable and useless.

The same applies to VAT. If you are on the standard two-month cycle, the payment leaves your account well after the sales that generated it. Businesses that treat collected VAT as working capital are borrowing from SARS at a rate that gets expensive quickly.

Roll it forward every week

On a fixed day each week, replace the oldest week's forecast with what actually happened and add a new week at the far end. The forecast stays thirteen weeks long and never goes stale.

The variance between forecast and actual is the part that teaches you something. If receipts consistently land a week later than you assumed, your debtor terms are not what you think they are.

Acting on what it shows

A forecast is only worth building if a dip triggers a decision. Set yourself a floor: the minimum balance below which you will not go. When the forecast projects a breach four or five weeks out, you have options that are still cheap:

• Chase specific overdue invoices rather than sending a general statement run
• Ask a supplier for an extra 30 days, before the payment is late rather than after
• Move a discretionary purchase into the following quarter
• Arrange facility headroom while your bank balance still looks healthy

The same breach discovered four days out leaves you with expensive options only.

Common mistakes

Forecasting the best case. If one client owes you a large amount and has already broken a promise to pay, do not put it in week two.

Forgetting annual and irregular items. Insurance renewals, the accounting fee, licence fees, a bonus. Go through last year's bank statements once and mark everything that appeared only once or twice.

Building it and not looking at it. A forecast that is updated monthly is a report. Updated weekly, it is a control.

Getting started

A spreadsheet is enough. Most owners can build a first version in an afternoon from twelve months of bank statements and a debtors age analysis. What matters more than the tool is the weekly habit of rolling it forward.

If cash flow is the thing keeping you up, we can build the first forecast with you and set up the weekly rhythm around it.