The Power of 13-Week Cash Flow Projections and Why You Should Use Them

WEBVTT

00:00:00.441 --> 00:00:02.608
Imagine you run a small retail business.

00:00:03.180 --> 00:00:10.750
Your 13-week projection shows a tight cash flow in the next month due to inventory purchases that you needed to make.

00:00:11.279 --> 00:00:17.789
With this insight, you might negotiate extended terms with suppliers now or seek short-term financing to bridge the gap.

00:00:18.400 --> 00:00:26.611
And that's the power of this thing it empowers businesses to make informed decisions rather than reacting to cash shortages when it's too late.

00:00:43.542 --> 00:00:44.767
Hey, Chip Schweiger here.

00:00:44.767 --> 00:00:58.392
Welcome to another edition of the Things Entrepreneurs Should Know the business podcast for entrepreneurs, founders and business owners who want to build lasting financial value and supercharge the growth of their business.

00:00:58.392 --> 00:01:08.867
Cash flow it's the lifeblood of any business, but understanding your business's cash flow isn't just about how much money is coming in and going out of your business.

00:01:08.867 --> 00:01:11.728
It's about the timing of those cash flows.

00:01:11.728 --> 00:01:19.046
Understanding when you'll have money available to cover expenses is essential for managing your business's financial health.

00:01:19.046 --> 00:01:27.251
So today on the show, we're exploring an essential tool for financial planning in any business the 13-week cash flow projection.

00:01:27.251 --> 00:01:38.629
We'll talk about why this tool is so powerful and valuable, as well as give you tips on how to create one, what to include and how to implement it for your business.

00:01:38.629 --> 00:01:41.459
Because you're busy, we'll do it all in about 10 minutes After the episode.

00:01:41.459 --> 00:01:42.861
Check out the show notes at teskpod.

00:01:42.861 --> 00:01:44.501
com.

00:01:58.171 --> 00:01:59.230
Hi there and welcome back.

00:01:59.811 --> 00:02:02.013
Cashflow is essential for any business.

00:02:02.013 --> 00:02:06.975
In fact, with adequate cashflow, your business can last virtually forever.

00:02:06.975 --> 00:02:12.562
Without it, though, even with profitability, you'll soon be out of business.

00:02:12.562 --> 00:02:15.387
Now, cashflow isn't just about revenue and expenses.

00:02:15.387 --> 00:02:23.751
It's about understanding the timing of money coming in and going out, and a 13-week cashflow projection helps you visualize this.

00:02:23.751 --> 00:02:35.453
Now, in Episode 22 of what I used to call The Entrepreneur's Advisor podcast (before we rebranded), we talk about why cash flow is so important and ways to get it.

00:02:35.453 --> 00:02:46.686
So that'd be a good episode to check out after we finish with this episode, but let's start this week by talking about why a 13-week cash flow projection is so valuable, and the answer is simple.

00:02:47.199 --> 00:02:53.574
A 13-week cash flow projection provides a short-term forecast of cash receipts and expenditures.

00:02:53.574 --> 00:03:02.094
It's crucial because it helps businesses anticipate periods of surplus or shortfall, enabling proactive decision making.

00:03:02.094 --> 00:03:08.387
If you're only looking a week or two in advance, you risk spending money now and then running out of cash later.

00:03:08.387 --> 00:03:20.044
With a 13-week view, you have enough horizon to fully anticipate what's coming and can develop strategies early to effectively make it through any periods of cash shortfall.

00:03:20.044 --> 00:03:51.055
Essentially, you can not only identify potential cash shortfalls early, but you can take pre at the beginning of the week and next is expected cash inflows, which are inflows from sales, investments, loans, etc.

00:03:51.055 --> 00:03:53.806
Also projected cash outflows.

00:03:53.806 --> 00:04:03.640
These are expenses like payroll, rent and utilities and don't forget about expenses that you have on auto pay, because these can sneak up on you if you're not careful.

00:04:03.640 --> 00:04:09.693
And then, finally, the ending cash balance, and this is what you expect to have at the end of each week.

00:04:09.693 --> 00:04:12.614
Now, keep in mind that this is all on a cash basis.

00:04:12.614 --> 00:04:17.151
So while your books are on an accrual basis, this is about cash flow.

00:04:17.151 --> 00:04:21.471
You're not gonna include sales, for example, until you actually collect the cash.

00:04:21.471 --> 00:04:30.415
So if you're a retailer, that'll be right away, but if you extend credit, it'll be when those accounts receivable collections actually hit your bank.

00:04:30.415 --> 00:04:38.278
And, by the way, check out Episode 34 if you want some tips on how to supercharge your accounts receivable process.

00:04:39.245 --> 00:04:54.528
By updating your 13-week cash flow projection on a weekly basis, businesses can adjust their operations, manage working capital effectively and ensure they've got enough cash to cover obligations, but you've got to update it on a weekly basis.

00:04:54.528 --> 00:04:58.377
Let's pivot a bit and discuss a practical example.

00:04:58.377 --> 00:05:01.048
Imagine you run a small retail business.

00:05:01.048 --> 00:05:09.170
Your 13 week projection shows a tight cash flow in the next month due to inventory purchases that you needed to make.

00:05:09.170 --> 00:05:16.233
With this insight, you might negotiate extended terms with suppliers now or seek short-term financing to bridge the gap.

00:05:16.233 --> 00:05:25.026
And that's the power of this thing it empowers businesses to make informed decisions rather than reacting to cash shortages when it's too late.

00:05:25.769 --> 00:05:30.559
If you're considering implementing a 13-week cash flow projection, here's some key tips.

00:05:30.559 --> 00:05:35.557
First, use reliable historical data to make projections more accurate.

00:05:35.557 --> 00:05:44.709
If you've got regular hourly payroll, for example, this will be easier, but if it's up and down, you'll want to average those expenses and then I'd probably add just a bit more.

00:05:44.709 --> 00:05:46.312
You'll want to average those expenses and then I'd probably add just a bit more.

00:05:46.312 --> 00:05:55.880
In fact, in the 13-week projections I do, I always add a little cushion called other Amateur golfers sandbag a bit, and that's exactly what I do with cash flow forecasting.

00:05:55.880 --> 00:06:03.773
Secondly, as we talked about already, update it weekly with actual numbers for better accuracy.

00:06:03.773 --> 00:06:08.649
And lastly, involve key stakeholders like finance teams or advisors to gain different perspectives.

00:06:08.649 --> 00:06:16.416
Now there are software tools out there to help you do this, or you can get your accountant or bookkeeper to do it, but, quite frankly, for my clients.

00:06:16.416 --> 00:06:20.052
I use a straightforward Excel spreadsheet that I've developed.

00:06:20.052 --> 00:06:26.976
It's simple, easy to read and allows you to scenario plan by just copy and pasting everything to a new tab.

00:06:27.985 --> 00:06:39.961
As we wrap up, remember that while a 13-week cash flow projection may seem daunting, it's a powerful tool for navigating uncertain financial waters and ensuring the sustainability of your business.

00:06:45.764 --> 00:06:47.670
Once you get it set up, it provides a short-term forecast of cash receipts and expenditures.

00:06:47.670 --> 00:06:54.295
That's crucial for helping you anticipate periods of surplus or shortfall and that leads to better proactive decision making.

00:06:54.295 --> 00:07:01.577
Well, that about wraps up another edition of the Things Entrepreneurs Should Know podcast.

00:07:01.577 --> 00:07:04.029
Be sure to check out our website at teskpod.

00:07:04.029 --> 00:07:12.458
com, where you can find the show notes, an archive of our past episodes and other resources to help grow your business.

00:07:12.458 --> 00:07:13.625
That's teskpod.

00:07:13.625 --> 00:07:15.531
com.

00:07:15.531 --> 00:07:23.935
And if you haven't done so already, I'd appreciate if you'd take one minute to give us a review on Apple Podcasts or rate us on Spotify.

00:07:23.935 --> 00:07:35.593
It helps out a lot to get this to more entrepreneurs and business owners, and if you've done that already, please consider sharing this show with family and friends, who you think would get something out of it.

00:07:35.593 --> 00:07:37.685
As always, thank you for your support.

00:07:37.685 --> 00:07:42.538
This is Chip Schweiger reminding you that if you always do what you've always done.

00:07:42.538 --> 00:07:44.870
You'll always get what you've always got.

00:07:44.870 --> 00:07:46.435
We'll see you next time.