Paul Bianco, Founder and CEO at Graphite
As a fast-growing startup, being able to track and accurately predict your cash flow is the linchpin of a sustainable and profitable business strategy. A 13-week cash flow forecast gives you a detailed look at projected inflows and outflows, helping you keep your finances organized and plan for future funding rounds.
Simply put, cash flow is the amount of money that travels in and out of your organization in a designated period of time.
Cash-based accounting focuses on when money actually moves in and out of your bank account, rather than accrual-based accounting, which is based on when the transaction is recorded.
A 13-week cash flow forecast gives you a detailed look at your capital for the upcoming quarter to help you prepare for any ups and downs.
The Dangers of Not Focusing on Cash Flow
If you’re not honing in on your cash flow, it’s easy to underestimate or forget about upcoming expenses. In the worst-case scenario for an up-and-coming startup, this could result in your organization running out of money.
Operating without a cash flow forecast also makes it difficult to plan ahead and mitigate financial problems.
Unfortunately, late payments do happen with customers, and they are often devastating for growing organizations with a small customer base. Without a cash flow forecast, a late payment could result in missed payroll.
Cash flow forecasting also helps you plan for future fundraising rounds. With a 13-week forecast, you’ll know exactly what your runway is, empowering you to intentionally time your fundraising efforts.
This information will help you communicate directly with existing investors and provide them with helpful visibility into your organization’s finances. A detailed cash flow forecast will also show future investors what to expect and help instill trust in your organization.
How Do You Lay Out a Cash Flow Forecast?
To lay out a cash flow forecast, start with the cash you currently have available. Then, go week by week to identify when you have payments coming in and when you have expenses that need to be paid in cash.
Cash flow forecasts are done on a cash basis, not an accrual basis. The forecast should be based on when the money enters and leaves your bank account, rather than when the transaction is recorded.
Money coming in would be based on when invoices are paid, rather than when they are sent. If you make a purchase with a credit card, that expense would be recorded when you make the credit card payment, rather than when you make the initial purchase.
Download our 13-Week Cash Flow Forecast Template
Used by top startups
Why is a 13-Week Cash Flow Important?
A 13-week cash flow helps you understand when you’re most likely to receive payments from clients and plan ahead for important credit card bills, payroll, and other expenses. This type of cash flow prediction is particularly helpful if you have multiple bank accounts.
Looking ahead to the next few weeks will help you determine when to make transfers between bank accounts if necessary to cover expenses. If you have a line of credit open, your forecast can also help you determine when to use it.
With a rolling 13-week forecast, you adjust your forecast each week based on your actual cash flow from the week prior. This means that at the beginning of each week, you actualize your starting cash levels, adjust your predictions, and expand the forecast by another week.
Managing your cash flow on a rolling basis gives you that extra layer of specificity and granularity that contributes to an overall healthy financial strategy.
In general, your 13-week cash flow forecast should supplement your long-term financial model and help your organization reach its financial goals.
13-Week Cash Flow in Practice
Recently at Graphite, we were looking to monitor our own cash flow on a more granular, week-by-week basis. Using a structured 13-week cash flow forecasting method gave us the insights we needed to plan ahead appropriately.
For example, we found that our cash collections each week varied depending on where we were in the month.
While we billed all of our clients once per month, they typically paid in waves. We wanted to understand exactly how much cash was coming in each week relative to our invoices. With our 13-week forecast, we see exactly when payments are coming in and apply that to payroll and other upcoming expenses.
Without breaking down the cash flow on a week-by-week basis, we could have easily lost sight of our expenses and sabotaged our ability to balance cash going in and out.
Refine Your Cash Flow Forecasting
Cash flow visibility is important for any organization, but it’s essential for startups. Your business is evolving at a rapid pace. A 13-week cash flow forecast will help you prepare for what lies ahead and protect yourself from turbulence as much as you possibly can.
Putting together your cash flow forecast might feel daunting, but you don’t have to do it on your own. Graphite’s team is here to help with expert accounting services specifically for startups. We’ll be your partner in putting together a viable long-term plan to keep your organization financially savvy.
Ready to refine your cash flow processes? Download our 13-week cash flow forecast template.
Need CFO or Accounting Help?
Born out of a VC fund, Graphite fully understands the strategic and financial needs of high growth companies. If you need accounting support or simply have a question about accounting at your company, feel free to connect with us!