Weekly Cash Flow Forecasts

Why Weekly Cash Flow Forecasts Are Worth Your Time

Do you really need to create weekly cash flow forecasts when you already create monthly profit and loss statements (P&Ls)? Actually, yes!

P&Ls are not a true indicator of an organization’s inflow and outflow of cash. For instance, they don’t show the cash used to make payments on loans—only the interest you’ve paid on the loan. Also, they don’t tell you whether you’ve received cash for the revenue billed or whether checks have been written for the expenses recorded. 

Benefits of Weekly Cash Flow Forecasts

The many benefits of weekly cash flow forecasts include that they:

• Provide an early warning of both positive and negative cash situations
• Offer insight into when funds are expected to come in and be paid out
• Can be used to plan cash movements to maximize investments and ward off cash shortfalls
• Are useful for evaluating liquidity
• Help predict line of credit needs
• Can help you maximize purchase discounts and avoid late fees
• Can assist with the timing of inventory purchases
• Help gauge the impact of grant funding and billing delays

A Real-world Example

Imagine that your organization experiences a four-week delay billing due to an employee being out on medical leave, resulting in a shortage of cash and a need to draw on a line of credit. The P&L would show the total revenue billed but not when it was billed or when funds were expected. 

With a weekly cash flow forecast, you would not only see the impact on cash but also be able to time the line of credit draw. 

Challenges of Creating Weekly Forecasts

If they’re so helpful, why do some organizations choose not to create weekly cash flow statements? Mainly because it can be difficult to pull together timely, accurate forecasts on a weekly basis. The statements need to be simple enough to be read quickly and, as forecasts, they’ll undoubtedly include constantly changing data. 

Weekly forecasts are nonetheless worth creating for organizations that are willing to devote themselves to three key areas:

• Critical thinking: Some data will be subjective and hard to find, so you need to be able to dig into difficult questions, make judgments, and have conversations with the right people to get answers.
• Data collection: To get meaningful data, you need reliable financial systems and people who can provide up-to-date reports and information.
• Smart models: You’ll need to decide whether to rely on a canned model for your statement or build your own model in Excel.

Need a Helping Hand?

Developing a helpful weekly cash flow forecast requires human interaction, good data, a hint of intuition, and experience. Insero & Co. can help you weigh the benefits of forecasts and, if it’s the right step for your organization, help you get started.