A profitable business can run out of cash. Receivables stretch, inventory builds, a tax payment falls due and a loan payment lands in the same week as payroll. The monthly budget does not show it, because it tells the owner what the year looks like and not what next Tuesday's balance will be. A 13-week cash flow forecast, built on the direct method and updated weekly, does. This article describes how to build and run one. The SBA notes that a balance sheet helps a business keep track of its capital and provide a cash flow projection for future years, and the SBA's business plan guidance asks for forecasted cash flow statements with more detail in the first year. The 13-week model is the short-range, weekly version of that.
Why direct method and weekly
The statement of cash flows in the financial statements usually starts from net income and adjusts for non-cash items and working capital, which is the indirect method. That presentation explains the past. A short-range forecast uses the direct method: cash in from customers, cash out to vendors, employees, tax agencies and lenders, by week. See statement of cash flows, indirect method and direct vs indirect method. Thirteen weeks covers a quarter, which captures a payroll tax cycle, a month-end and a quarter-end in sequence. A forecast longer than that for liquidity decisions becomes too uncertain to act on, and a shorter one misses the tax and debt calendar.
Build the model
1. Opening cash
Start from reconciled bank balances. See account reconciliation standards. Include every account the business can use, and list restricted balances separately.
2. Receipts
- Customer collections. Start from the aged receivables list. For each large customer, assign an expected payment week from the invoice due date and the customer's payment history. Add the expected billing and collection of new sales for the remaining weeks.
- Other receipts. Loan draws, owner contributions, tax refunds, asset sales and interest. Treat uncertain items with caution.
- Cash sales. Estimate by week from recent patterns and known seasonality.
3. Disbursements
- Payroll. Gross wages by pay date, employer taxes and benefits.
- Payroll tax deposits. On the deposit dates, which follow the monthly or semiweekly schedule. See payroll tax deposits.
- Vendors. From the aged payables list, by due date and by the firm's own payment policy, plus expected new purchases.
- Rent, insurance, utilities and subscriptions on their due dates.
- Debt service. Principal and interest on schedule, plus covenant-related payments. See bank covenants and compliance certificates.
- Taxes. Estimated income tax payments, sales tax remittances and property tax on due dates. See estimated tax payments and 2026 due dates.
- Capital expenditures and owner distributions.
4. Net cash flow and closing cash
Closing cash is opening cash plus receipts less disbursements. Set a minimum cash level the owner wants to hold and compare each week's closing balance with it. Show the first week the forecast goes below the minimum and the amount of the shortfall.
5. Funding gap and options
If the forecast shows a shortfall, list options with timing and cost: collecting overdue receivables, negotiating terms with vendors, deferring purchases, drawing on a line of credit, owner funding or a new loan. For a lender-supported plan, see financial statement analysis for lenders and the SBA's description of its 7(a) program, in which the borrower works through a lender that decides the documents it requires.
Weekly routine
- Update actuals. Replace the past week's forecast with the bank activity. Post receipts and disbursements to the same lines the forecast used.
- Compare to forecast. Compute the variance for each line.
- Explain variances. Timing, amount or an item missed. Record the reason.
- Roll the window. Add a new week at the end so the model always looks 13 weeks ahead.
- Refresh the large items. Review the top customers' expected payments and the next two weeks' disbursements with the owner.
- Report. A one-page summary: opening cash, receipts, disbursements, closing cash, minimum cash and the first week of concern, and a note on what changed.
Track forecast accuracy over time by line. Consistently late customers or recurring missed items show where the assumptions need to change.
Connecting to the other statements
The 13-week model is not a replacement for the budget. It is the near-term check on the budget's cash assumptions. Reconcile the first month of the model to the monthly forecast, and explain differences. See budgeting and forecasting for small business clients. The working capital drivers are the same: days sales outstanding, inventory and payables. See days sales outstanding, cash conversion cycle and working capital.
Going concern and audit link
A cash forecast supports management's going concern evaluation, which looks at conditions and events that raise substantial doubt about the ability to continue as a going concern within one year after the date the financial statements are issued (or available to be issued), and at management's plans. Auditors ask for the forecast and test its assumptions. See going concern management plans evaluation and going concern note examples.
Common problems
- Opening cash taken from the books and not the bank.
- Receipts forecast by sales, not by when customers pay.
- Missing tax and payroll tax dates.
- Weeks combined, hiding the pinch points.
- A model nobody updates after the first month.
- No minimum cash level, so every positive balance looks fine.
FAQ
Why 13 weeks?
It covers a quarter, which includes the payroll, tax and debt calendar, and it is short enough to be reliable.
Direct or indirect method?
Direct for the short-range forecast. The indirect method fits the reported statements.
Who updates it?
The client's finance lead or the firm, weekly, with owner review.
CORAA prepares ready-to-review audit files for US CPA firms; see /us.
Sources
- SBA, Write your business plan (financial plan): https://www.sba.gov/business-guide/plan-your-business/write-your-business-plan
- SBA, Manage your finances: https://www.sba.gov/business-guide/manage-your-business/manage-your-finances
- SBA, 7(a) loans: https://www.sba.gov/funding-programs/loans/7a-loans
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