13-Week Cash Flow Forecast
Below is an email I received from a member of IMEG’s board of directors, a man that knows so much about true business. This has so much value all the time but for sure right now when cash is so important to stay alive. If you do not follow Keith I highly advise you do so as he has been huge for our business from being a member of our board as well as just great training, books, and insights.
- Keith’s Books
- Keith’s Website
- CFO Scoreboard < Amazing Tool
- 13 Week Cash Flow Forecast PDF
- 13 Week Cash Flow Forecast XLS
Dear Justin –
Oxygen is something we rarely think about until it is cut off and then it becomes our highest priority. The reason is obvious: Without oxygen, life rapidly becomes increasingly uncomfortable and then you die….quickly.
In business, oxygen is cash and cash flow. When your cash becomes low or cash flow lurches into negative territory, your survival is dictated by how quickly and effectively you address this problem. Delaying or minimizing the fix, or hoping the cash supply lines are quickly restored and things get back to “normal” is a prescription for a painful death.
In light of the current economic turmoil, you probably have several competing agendas and priorities. While all these issues must be addressed, your highest priority is having a granular, detailed, specific, up-to-date understanding of your oxygen, oxygen supply, oxygen production capability and oxygen storage tanks.
You must be able to accurately estimate the changes you must make to ensure survival. The problem is correctly estimating the length of time.
The mistake most people make when dealing with a crisis is to be overly optimistic about the time period they need to be in survival mode. The default assumption we make is the problem will be rectified sooner rather than later and therefore, the adjustments and cuts that get made are not deep enough, particularly with our personal spending. The unhappy result is cash that could have been preserved to extend our life if the problem goes on longer than estimated, gets consumed… and once cash has been spent, it is gone… forever!
As we approach your upcoming Board Meeting, it is critical that you and I have extreme clarity and specificity about your financial status, cash reserves and anticipated short term cash forecast. (Glossy, foggy, fluffy, gut feel generalizations are the enemy of clarity!)
I strongly recommend you immediately start using a Rolling 13-Week Cash Flow Forecast to help you get and maintain clarity about your true cash picture. (See information on that attached). If you use the KTTV Trend Analysis, there is a Rolling 13-Week Cash Flow Forecast there. I have also attached an example template available via Microsoft Excel.
In addition, you must know and be able to report on:
- Your current cash balances.
- The amount of your A/R that can be collected quickly or is overdue. What needs to happen to keep your A/R current going forward.
- Projected cash flow from operations assuming the current environment remains “as is” for 3-4 months.
- Projected cash burn rate. (This is your total expenses on a monthly basis.)
- Your variable vs. fixed expenses monthly.
- Payments (loan, landlord, vendors) that can be extended or delayed.
- The source and amount of additional financing available. (This is either from your line of credit at the bank, additional bank (institutional financing), your personal funds available to be injected if necessary, or friends and family, etc.)
- Any stray or unused assets that can be liquidated for cash.
- The amount of your personal burn rate and the amount that burn rate can be curtailed to preserve cash for the business.
- The excess baggage and fat that can be curtailed/delayed/ furloughed/whacked in your expenses. (Sometimes some muscle will need to be considered for reduction… the last thing to get cut is the bone. You can’t rebuild after the crisis if there is no bone, so be careful here.)
- Expansion, growth or Cap X plans/expenditures that can be delayed.
- A summary of all the adjustments you either have or will make and how these changes result in your survival over the next 3-4 months. (Do the math and be clear about your assumptions.)
- 13. Your communication plan with your team/employees about your plan and how it impacts them. I can tell you from personal experience that if the plan is communicated effectively, it can solidify your culture… but if it is done poorly, it will destroy your culture… Be thoughtful about this. Your employees are not ignorant about what is going on and you pretending everything is okay erodes your effectiveness and credibility as a leader.
If you can’t devise a plan that sees you through the next 3-4 months, then you will need to revisit your plan and make further adjustments or get more creative. If that still doesn’t work, then you must source and begin meeting with a bankruptcy lawyer (Chapter 11) so you can understand your options.
Depending on your financial condition when we entered this crisis and the impact it is having on your business, making sure you have a full tool belt is mandatory. Chapter 11 Bankruptcy is a business tool. It is a tool that can be very effective in the right circumstances, but it is complex and has to be navigated and communicated effectively… but if bankruptcy is the only tool available to ensure survival, I will use it.
This crisis will pass. The problem all of us have is estimating how long it will last and then developing the plan accordingly. This is one of your primary jobs as the CEO and leader of your business. Once you have made the tough choices, having the courage to execute your plan is mandatory. One of your jobs as a leader is to make the difficult choices and have the candid conversations.
Start this work immediately and be prepared to discuss your plan at our Board Meeting.
PS… Please remember to look at the attached for info on the 13-Week Rolling Cash Forecast.
Keith J. Cunningham