What is a 13-Week Cash Flow (TWCF) Forecast: Guide for Startups

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 over a designated period of time — and cash is king.

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.

Who Uses 13-Week Cash Flow Forecasts?

Thirteen-week cash flow forecasts have universal relevance across three main user groups: startups, distressed companies and corporate finance teams.

Startups and Growth Companies

Thirteen-week forecasts are important for startups to overcome various challenges related to financial instability while managing limited resources. They help provide near-term visibility, helping founders make better, more informed decisions. A 13-week rolling forecast can help startups better manage seasonal revenue fluctuations, high burn rates and the unpredictability of customer payments.

Some common use cases include timing fundraising rounds to secure and manage funding, and proving financial discipline to investors.

Companies in Financial Distress

In some cases, organizations must undergo significant restructuring to continue operating. The courts and lenders typically require 13-week forecasts during Chapter 11 bankruptcy or DIP financing, helping them manage short-term liquidity and take more decisive action.

CFOs, Treasurers, and Financial Leadership

Thirteen-week forecasts are also professional finance tools used by more mature startups and sophisticated organizations. The finance team uses 13-week forecasts for quarterly planning and investor reporting, and banks and lenders typically require them for credit evaluations to assess a borrower's cash balance and overall company's financial health.

Why Startups Need 13-Week Cash Flow Forecasts

Avoiding Cash Shortfalls and Missed Payroll

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 weekly cash flow forecast, a late payment could result in missed payroll. The 6–8 week visibility window specifically allows startup leaders to take action when potential cash shortfalls emerge.

Planning Fundraising Rounds and Runway

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. Generally, you'll want to start your fundraising when you have 6-9 months of runway remaining, yet weekly granularity helps identify the exact week funding is needed so you can better zero in on when you know you'll need more capital to function.

Building Investor Confidence and Transparency

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.

Investors look for discipline, realistic assumptions and leadership's knowledge of key cash drivers in a 13-week forecast. It's also a good tool to present to boards and investors when you're updating these key stakeholders on your progress in board meetings and other reports as it clearly shows beginning cash balance, movements in cash disbursements, and ending cash balance.

When to Use (and Not Use) 13-Week Forecasts

While 13-week forecasts certainly have value for startups, there are times when it's important to supplement this forecast with other financial models.

Ideal Use Cases for 13-Week Forecasting

The ideal use cases for 13-week forecasting include:

• When managing multiple bank accounts
• Pre-fundraising planning
• When there's a high customer concentration risk
• When managing seasonal cash variations
• When optimizing line of credit draws
• For startups with payment timing variability

Some ideal use cases include optimizing working capital and scenario planning. A 13-week forecast allows startup leaders to identify potential shortfalls in advance, permitting time to plan financing, delay payments or accelerate collections. Such forecasts can also help with scenario planning by allowing leaders to model various situations based on cash inflows and outflows including one-time asset sales or shifts in supplier payments.

When to Supplement with Longer-Term Models

In general, your 13-week cash flow forecast should supplement your long-term financial model and help your organization reach its financial goals. Noting this, there are times when the 13-week forecast alone is not sufficient.

Some limitations of the forecast or situations when it can serve as a complementary tool include:

• When you're determining a 1-year rolling budget and a 3-5 year strategic model.
• When you need daily visibility to manage a tight cash runway, consider moving to a 4-week daily forecast.
• When you need a longer horizon for capital expenditure decisions, long-term hiring plans and market expansion.
  
  

Core Components of an Effective 13-Week Cash Flow Model

Core components of a 13-week cash flow model include model dimensions and input and output data. Model dimensions help define how output data is presented, while input data includes actual and forecast cash flow figures. Organizing such data, as well as cash inflows and outflows, involves creating a clear, structured spreadsheet with separate columns for each week and rows for different categories.

Cash Receipts Projection Strategies

To accurately forecast cash based on revenue models, start with historical data and consider both internal and external factors. From there, use the appropriate forecasting methods to project future cash inflows and outflows. This may require monitoring and refinement over time.

Tracking weekly cash receipts allows for a more precise understanding of cash inflows, helping to avoid overestimations and better align projections with actual payment patterns. Some common pitfalls your startup will want to avoid include overestimating revenue, underestimating expenses, ignoring accounts receivable management and failing to update expenses regularly.

Forecasting should also aim to anticipate when money will actually arrive in your startup's bank account. Decide upon your specific inflow categories and estimate payment timing based on customer behavior patterns. It's best practice to be conservative with your assumptions and avoid overestimation by grounding inflow timing in expected customer payments.

Some of the key outflows that all startups should be tracking include:

• Operating expenses (i.e., salaries, utilities, inventory, marketing and sales, etc.)
• Investing activities (i.e., purchases, acquisitions, etc.)
• Financing activities (i.e., debt repayment)

Be sure to know the difference between fixed and variable expenses and how they impact your forecasting. Fixed expenses are stable, predictable costs, while variable expenses change and can be harder to forecast. Make sure you're budgeting fixed costs as a consistent amount, but forecast variable costs using averages.

Cash-tight periods are bound to occur. When this happens, best practices include prioritizing payments based on their impact on the business. For example, prioritize the most critical vendors and essential operations, and then get to the non-essentials.

Working Capital Management Within the Model

Working capital is the projected amount of your startup's short-term assets minus its short-term liabilities. In a 13-week forecast, it's used to assess liquidity over the forthcoming three months and can help analyze how various components of working capital fluctuate on a week-to-week basis to allow for proactive cash management.

A 13-week model provides a short-term view of cash flow, which thereby allows your startup to better predict and manage it. This can help startups improve AR, optimize accounts payable, and optimize their working capital by fully understanding the timing and significance of their financial health. It can also help influence any tactical decisions you need to make, such as offering early payment discounts, delaying discretionary payments and optimizing purchase timing.

Another benefit is the forecast's ability to help measure DSO and DPO and make adjustments accordingly. DSO helps measure how effectively your startup is collecting payment from its customers, while DPO measures the average number of days your startup takes to pay its vendors and suppliers.

How to Build Your Startup's First 13-Week Cash Flow Model

To lay out a cash flow forecast, start with the cash you currently have available. Then, go week by week to identify when payments are coming in and when expenses 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 will be recorded when you make the credit card payment, rather than when you make the initial purchase. All of this contributes to building a clearer picture of expected cash flow for each week.

Data Collection and Organization Best Practices

Some of the key data points you'll want for your 13-week financial model include:

• Cash inflows
• Cash outflows
• Sales collections
• Payment cycles

Such data should be derived from the past calendar year to identify the right trends and patterns to best inform the forecast and estimate cash flow within the model's time period. Organize the data in spreadsheets, input it into financial modeling software, or consider other FP&A tools to properly chart and track the data. From here, you can identify patterns in historical data.

Key data sources include bank accounts, accounting software, CRM and credit card statements.

Step-by-Step Setup Instructions

1. Set up your spreadsheet structure
2. Input your starting cash position from all accounts
3. Build a cash receipts section with specific rows and example calculations
4. Build the disbursements section with specific categories and dates
5. Calculate the weekly net cash flow and ending balances with formulas
6. Create scenario planning to gauge best-case, worst-case and most likely situations

Download this free template to help you get started.

Implementing a Rolling Forecast Approach

A "rolling" 13-week forecast is a more dynamic financial projection that forecasts cash inflow and outflow continuously. Fitting to the name, it's best practice to adjust your rolling 13-week forecast based on your actual cash flow regularly. Rolling forecasts will need to accomplish several things:

• Gather data: Cash inflows and outflows are gathered at the beginning of each week based on what they were the previous week.
• Adjusting predictions: These are adjusted based on data, including expected cash inflows, to better align with real-time financial conditions.
• Expanding the forecast: Once predictions are updated, add a new week to the forecast with such data.

One key benefit of a 13-week forecast is that it allows your startup to communicate directly with investors and stakeholders, providing them with real-time and helpful visibility.

Real-World Example: How We Use 13-Week Forecasting at Graphite

Recently at Graphite, we were looking to monitor our own cash flow on a more granular, week-by-week basis. Using a structured weekly cash forecast 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.

Another example of where a 13-week forecast can come in handy is for a SaaS startup when tracking its cash burn rate. By spotting a projected shortfall several weeks in advance, founders can raise new capital before their cash runway runs critically low.

Take Control of Your Startup's Cash Flow Today

Are you ready to take better control of your startup's cash flow? As a professional financial services company that specializes in helping startups scale and prosper, we'll help you optimize your cash flow forecasting and set you up for success.

Contact Graphite today for more information and to schedule a consultation, or download our free 13-week cash flow forecast template today.

FAQs

How often should a 13-week cash flow model be updated?

A 13-week model should be updated weekly to reflect the most recent and real-time cash flows as well as any changes in business assumptions.

What financial metrics can be derived from a 13-week cash flow forecast?

Metrics such as working capital needs, potential cash shortages and a better ability to understand what's driving cash flow are the major data points that startup leaders can glean from a 13-week cash flow forecast.

How can a 13-week cash flow model help during fundraising?

Such models provide clear, granular views of cash positioning in the near term, which can help with better planning and decision-making around key fundraising timelines. Additionally, they help investors more appropriately assess your startup's financial health.

Can a 13-week cash flow model be used for different types of startups (e.g., SaaS, eCommerce)?

Yes, it's a valuable tool for any startup when it comes to managing liquidity, anticipating shortfalls and making better decisions.

What software or tools should I use to create a 13-week cash flow forecast?

It's OK to start simple, using Excel or Google Sheets in your startup's very early stages. However, as you grow and scale, consider upgrading to more automated solutions such as Finmark, Jirav, Mosaic or Cube. More mature startups may consider GTreasury and Kyriba.

How accurate should my 13-week forecast be?

You should always strive for 100 percent accuracy, but the reality is that accuracy tends to decrease the further out you forecast. Aim for 90-95 percent accuracy for Weeks 1-4, 80-90 percent for Weeks 5-8 and 70-85 percent for Weeks 9-13.