by Scott McGurk

 

Many companies, especially those experiencing turbulent financial times, have received a call from their friendly banker (or workout officer!) asking the company to prepare a 13 week cash flow forecast.  If you have received such a call, before you sigh and proclaim, “Another bank request…and another waste of time!”, please reflect on the fact that the 13 week cash flow forecast can serve as an important management tool.

This simple report can help you identify looming cash issues and hopefully allow you sufficient time to address those issues.  When times are tough, you feel like you are running full steam in order to overcome the problems.  Consider not having the 13 week cash flow forecast as analogous to doing that “running” with a box over your head.  Sooner or later, you are going to run into a wall, and you will not know it until you hit!

Besides helping to identify the upcoming challenges, when updated weekly, it can help guide the company out of specific cash flow challenges by identifying the timing and length of the cash shortage.  This provides the company time to negotiate with vendors for extended terms and helps to provide an accurate timeline for a proposed payment.  As such, the 13 week forecast allows you to be proactive with vendors which can strengthen your position for negotiations down the road.

Further, it will prove useful for businesses seeking new financing or re-financing with lenders.  Having the 13 week cash flow forecast at the ready when the banks asks for it (and they likely will) demonstrates to your potential lenders that you are employing good management tools in running the business.  It will likely increase the prospect of obtaining that new financing and might even obtain a slightly better interest rate.

Many companies feel that they cannot “predict” the future sufficiently to prepare the 13 week cash flow forecast.  However, it is pretty safe to say that there has never been a financial projection or forecast that turned out to be 100% accurate.  The goal here is not to predict the future, but instead to provide the business guardrails to help you know when you are veering off course, as well as the information needed to get back on course.

In order to be truly useful, the 13 week cash flow forecast should not become so cumbersome that it cannot be updated every week on a timely basis.  There is a bit of an “art” to knowing how much detail is necessary and how much is too much.  This is where Inglewood Associates LLC can help.  Our experience in this area has proven very successful for many of our clients both in resolving their issues and in demonstrating to their lenders that they are doing the right things to fix the problems. 

While the 13 week cash flow forecast may be seen to some as the “holy grail” for bankers, it can be an extremely helpful, practical tool for your business.

About Inglewood Associates

Since 1983, Inglewood Associates has been delivering valuable business acumen to assist clients with a wide range of business challenges. Inglewood principals bring their wide-ranging experiences as interim and full-time CEOs, CFOs, COOs, CIOs and Chairmen of the Board to assist clients with effective solutions for their needs and circumstances. Inglewood Associates specializes in business performance advisory, business turnarounds, interim management, M&A due diligence, expert witness and project management.