What is a 13-Week Cash Flow, and Why Isn’t It Enough for Most Businesses?

We’ve recently seen more and more CPA firms, fractional CFOs, and financial experts advertising 13-week cash flow plans. The messaging behind these offers insinuates that this simple 13-week financial reporting document can help businesses ease the burden of financial challenges (like the recent COVID-19 pandemic).

To us, this seems like a misleading gimmick to make business owners believe they can buy a simple and fast solution to ease their pain during this time. During any financial crisis, including the effects of COVID-19, a 13-week cash flow simply isn’t enough.

Before we dig into why a 13-week cash flow isn’t enough during a financial crisis, let’s discuss some of the basics of the 13-week cash flow.

What is a 13-Week Cash Flow?

A 13-week cash flow is a financial statement that forecasts your business’s cash inflow and outflow over 13 weeks. Its purpose is to give you a “big picture” look at your cash so you can make better, more strategic short-term financial decisions. It helps you identify your working capital so you can have a sense of whether you need to collect more cash or generate more revenue. It can also inform purchasing and budgeting decisions.

A 13-week cash should be “rolling,” meaning as one week finishes, you add another week of forecasting to the end of your forecast so you’re always able to look 13 weeks ahead.

This is the minimum amount of time you should be able to project your cash flow. However, as we’ll discuss later in this article, 13 weeks alone is not a long enough projection.

Do I Need a 13-Week Cash Flow?

Yes, most businesses need a 13-week cash flow. Without a 13-week cash flow, your company lacks a high-level view of where your cash is going and how much working capital you have available. A 13-week cash flow is the best way to inform short-term financial decisions. It also helps you keep a pulse on the performance of your company so you can more quickly identify challenges or opportunities.

Why a 13-Week Cash Flow Isn’t Enough During Financial Crisis

When many businesses experience a financial crisis such as a cash flow crisis or such as the COVId-19 pandemic and associated economic impact, many businesses turn to a 13-week cash flow.

If your current financial advisor (such as a CPA firm, controller, or virtual CFO) is telling you that a 13-week cash flow is all of the forecasting you need, don’t listen. Inexperienced financial staff will often resort to a 13-week cash flow as a band-aid that helps business owners feel like their pain is decreasing without going through the work and strategy to truly resolve the challenge.

To have a sound financial strategy, your 13-week cash flow forecast MUST be in conjunction with a 5-year forecast and one-year cash flow plan. Here’s why:

You Need a Plan for Where You Want to Go—and How to Get There

The biggest reason you need more than a 13-week cash flow forecast is that a 13-week forecast only provides short term planning and tracking. For business success, you should have a detailed long-term plan for how to get from where you are now to where you want to go.

Think of it like building a house. For illustrative purposes, let’s compare the 13-week cash flow forecast to a 13-day building plan:

You could have the general idea of the house you want to build (4000 square feet with an open floor plan and large front porch). If you plan only 13 days at a time, you’ll get projects done, but they will neither be cohesive, nor will they be done efficiently.

You’ll probably end up with a house at the end, but it may not look exactly how you imagined. It may be missing interior aspects that, had you planned ahead, you would otherwise have liked to have. It also would likely have taken much more time—and would have included more wasted materials, money, and labor.

The same is said for businesses. Long-term forecasts are a blueprint to help you get from where you are now and how to get there. They provide the shortest path to success with the greatest efficiency and least waste.

You Need a Long-Term View

While a 13-week cash flow is sufficient for helping keep a pulse on the business and make small, short-term financial decisions, it is certainly not enough information to run a business. You should have a 5-year financial forecast as well as a 1-year cash flow forecast that you use for a rolling budget.

Companies who rely on this short-term cash flow plan (even when in conjunction with a 1-year budget) as their main source of forecasting are more likely to waste a significant amount capital on misinformed expenses or poorly timed initiatives.

You Need Multiple Scenarios

During a financial crisis, especially a global one like the COVID-19 pandemic, you may not always have the information you need to be able to make informed predictions about what to expect. Your forecasts should include a “best case,” “expected case,” and “worst-case” scenario. This way, if at any time you begin tracking along one of the contingent scenarios, you may adjust your budget and short-term cash flow plan accordingly.

Failing to have multiple scenarios means you’ll be left flailing if things start to go off track. At the very least, this will mean wasted spend and slow response. At the very worst, it could be the downfall of your business.

See our article on why cash flow is one of the main reasons small businesses fail →

Survival Mode Does Not Equal Success

You or your lower-level financial staff (such as a CPA, controller, or inexperienced virtual CFO) may content you with the idea that you just need to “survive the next 13 weeks,” then you can start focusing on a longer-term strategy. However, at this time, we don’t know how long the economic impacts of COVID-19 will last. We also don’t know if there’s going to be a resurgence in the fall or winter. If you got PPP funding, there’s also a point in time where this money runs out—and then what?

While it takes more work at the time, planning out your cash flow and forecast more than 13 weeks in advance is your greatest chance to not only survive, but to also maximize your chance of recovery.

What to Do Next

If you don’t currently have a financial expert who can help you plan out longer than 13 weeks in advance, now’s the time to reach out to one. Some outsourced CFO firms, such as Preferred CFO, are offering free financial consultations during the COVID-19 crisis. They can help take a look at your current financials and forecasts and help determine what may be missing in your planning and how to bridge that gap to maximize your potential for recovery.

About the Author

Jerry Vance

Jerry Vance is the founder and managing partner of Preferred CFO. With over 15 years of experience providing CFO consulting services to over 300 organizations, and 28 years in the financial industry, Jerry is one of the most experienced outsourced CFOs in the United States.