Build accurate cash flow forecasts using the 13-week cash flow model. Prevent cash crunches and make better business decisions with practical tools.
Cash Flow Forecasting for Small Business: Complete Guide
Profitable companies go out of business every day. Not because they're losing money, but because they run out of cash.
Revenue on an invoice doesn't pay your rent. A big contract next quarter doesn't make payroll this Friday. Cash flow is oxygen—without it, nothing else matters.
This guide teaches you to build cash flow forecasts that actually work. You'll learn the 13-week cash flow model used by CFOs at billion-dollar companies, adapted for small businesses.
By the end, you'll see cash problems coming months in advance and make decisions that keep cash flowing.
Why Cash Flow Forecasting Matters
Your P&L shows profitability. Your balance sheet shows net worth. Neither tells you if you can make payroll next week.
Cash flow forecasting answers the critical question: Will we have enough cash when we need it?
Common Cash Flow Problems
Seasonal Revenue with Fixed Expenses
You make 70% of revenue in Q4 but have expenses year-round. Without forecasting, you're blindsided by summer cash crunches.
Growth Requires Working Capital
Every new customer requires inventory, labor, or delivery before payment arrives. Fast growth drains cash faster than it generates profit.
Payment Terms Mismatch
You pay suppliers in 15 days but customers pay you in 60 days. That 45-day gap must be funded.
Large Irregular Expenses
Annual insurance premiums, tax payments, equipment purchases—predictable but easily forgotten without systematic forecasting.
Delayed Customer Payments
Accounts receivable aging means revenue booked months ago still hasn't converted to cash.
What Good Forecasting Enables
Proactive Decision Making
See problems 8-12 weeks out. Secure a credit line before you're desperate. Delay expenses or accelerate collections while you still have options.
Better Financing Terms
Banks give better rates when you're not in crisis. Approach them with a forecast showing exactly how much you need and when you'll pay it back.
Confident Growth Investment
Know how much cash you can invest in growth without risking operations. Expand with data instead of gut feel.
Reduced Stress
Sleep better knowing your cash position for the next three months instead of wondering if Friday's payroll will clear.
The 13-Week Cash Flow Model
The 13-week rolling cash flow forecast is the gold standard. It's detailed enough to be actionable, short enough to be accurate.
Why 13 Weeks?
Weekly Granularity
Monthly forecasts hide timing issues. A month with strong overall cash flow might include a week where you can't make payroll.
Weekly forecasting shows exactly when cash peaks and valleys.
Rolling Window
Every week, you drop the oldest week and add a new week at the end. The forecast constantly looks 13 weeks ahead.
This rolling approach keeps forecasts fresh and forces regular updates.
Accuracy Sweet Spot
Forecasting beyond 13 weeks becomes increasingly inaccurate for most small businesses. Inside 13 weeks, you have enough visibility to project with confidence.
Model Structure
The 13-week model has three sections:
1. Opening Cash Balance
Cash in the bank at the start of each week.
2. Cash Inflows
All cash coming in:
- Customer payments (cash and credit card revenue)
- Accounts receivable collections
- Loan or investment proceeds
- Other income
3. Cash Outflows
All cash going out:
- Payroll and contractor payments
- Rent and utilities
- Inventory and COGS
- Operating expenses
- Loan payments
- Tax payments
- Capital expenditures
4. Ending Cash Balance
Ending Cash = Opening Cash + Inflows - Outflows
This week's ending balance becomes next week's opening balance.
Sample 13-Week Cash Flow Model
Here's a simplified version:
| Week |
Opening Cash |
Inflows |
Outflows |
Ending Cash |
| 1 (Dec 23) |
$45,000 |
$18,000 |
$22,000 |
$41,000 |
| 2 (Dec 30) |
$41,000 |
$15,000 |
$28,000 |
$28,000 |
| 3 (Jan 6) |
$28,000 |
$25,000 |
$19,000 |
$34,000 |
| 4 (Jan 13) |
$34,000 |
$22,000 |
$24,000 |
$32,000 |
| ... |
... |
... |
... |
... |
| 13 (Mar 17) |
$38,000 |
$26,000 |
$21,000 |
$43,000 |
Week 2 shows a problem: cash drops to $28,000. If minimum operating cash is $30,000, you need to take action now.
Building Your Cash Flow Forecast
Let's build a complete 13-week forecast step by step.
Step 1: Gather Historical Data
Pull the last 6-12 months of:
Bank Statements
- Opening and closing balances
- All deposits (by category)
- All withdrawals (by category)
Accounts Receivable Aging
- Outstanding invoices
- Customer payment patterns
- Average days to payment
Accounts Payable
- Outstanding bills
- Vendor payment terms
- Average days to payment
Recurring Expenses
- Payroll schedule and amounts
- Rent and utilities
- Subscriptions and software
- Loan payments
Seasonal Patterns
- Revenue by month
- Expense spikes
- Industry seasonality
Step 2: Categorize Cash Flows
Break down inflows and outflows into categories for easier forecasting:
Cash Inflows:
- Cash sales (received immediately)
- Credit card payments (2-3 day delay)
- ACH/check payments (varies by customer)
- Accounts receivable collections (track by aging bucket)
- Financing (loans, lines of credit, investment)
- Other income
Cash Outflows:
- Payroll (weekly, bi-weekly, or monthly)
- Rent and facilities
- Inventory and COGS
- Contractor payments
- Marketing and advertising
- Software and subscriptions
- Utilities and services
- Loan payments
- Tax payments (quarterly, annual)
- Capital expenditures
- Other operating expenses
Step 3: Build the Framework
Create a spreadsheet with:
Columns: 13 weeks starting from next week
Rows:
- Opening cash balance
- Cash inflows (by category)
- Total inflows
- Cash outflows (by category)
- Total outflows
- Net cash flow (inflows - outflows)
- Ending cash balance
- Minimum required cash (benchmark line)
- Surplus/deficit
Step 4: Forecast Cash Inflows
This is the trickiest part because revenue timing varies.
Cash Sales (Immediate Payment)
If you have point-of-sale revenue or immediate payment:
Base forecast on:
- Same week last year (seasonal adjustment)
- Recent 4-week average
- Known sales pipeline or bookings
Example: Retail store
- Week 1 (holiday season): $25,000 based on last year
- Week 2-4 (post-holiday): $12,000 average based on historical pattern
- Week 5+: $15,000 normal weekly average
Accounts Receivable Collections
This requires modeling payment behavior:
Step A: Analyze Payment Patterns
Pull AR aging report. Calculate what percentage of invoices get paid in:
- 0-30 days
- 31-60 days
- 61-90 days
- 90+ days
Example Pattern:
- 40% paid within 30 days
- 35% paid in 31-60 days
- 20% paid in 61-90 days
- 5% uncollectible
Step B: Project Collections by Aging Bucket
If you invoice $50,000 in Week 1:
- Week 2-5 (within 30 days): Collect 40% = $20,000
- Week 6-9 (31-60 days): Collect 35% = $17,500
- Week 10-13 (61-90 days): Collect 20% = $10,000
- Uncollectible: 5% = $2,500
Distribute collections across the weeks based on your specific patterns.
Step C: Add Currently Outstanding AR
Take current AR aging report:
- $30,000 in 0-30 days → project $12,000 collected in next 4 weeks
- $25,000 in 31-60 days → project $8,750 collected in weeks 5-8
- $15,000 in 61-90 days → project $3,000 collected in weeks 9-12
Recurring Revenue
For subscription or retainer revenue:
Project based on:
- Current MRR
- Expected churn rate
- Scheduled expansions or downgrades
- Known contract renewals
Example: SaaS business
- Current MRR: $80,000
- Expected churn: 3% monthly
- New MRR: $5,000/month projected
- Collections: 95% by credit card (immediate), 5% by invoice (30-day delay)
Weekly cash inflow:
- Week 1-4: $19,000/week from credit card billing
- Weeks 5+: Add $1,000/week from previous month's invoiced revenue
Step 5: Forecast Cash Outflows
Outflows are more predictable than inflows.
Fixed Recurring Expenses
These are simple—you know exactly when and how much:
- Rent: $5,000 on the 1st of each month
- Payroll: $35,000 every other Friday
- Loan payment: $2,500 on the 15th of each month
- Software: $1,200 monthly on the 10th
Plot these on your forecast based on the exact payment dates.
Variable Operating Expenses
Expenses that fluctuate but follow patterns:
Marketing/Advertising:
- Review past 6 months spend
- Identify patterns (seasonal campaigns, evergreen spend)
- Adjust for planned changes
Example:
- Baseline: $3,000/week ongoing Google Ads
- Spike: $10,000 additional in Week 4 for planned campaign
- Weeks 1-3: $3,000/week
- Week 4: $13,000
- Weeks 5+: $3,000/week
Contractor Payments:
- Review contractor invoicing patterns
- Project based on expected workload
- Account for payment terms (Net 15, Net 30)
Example:
- Average contractor spend: $8,000/month
- Payment terms: Net 15
- Week 1: Pay $8,000 from previous month
- Week 3: Pay $8,000 from early current month
- Week 5: Pay $8,000 from late current month
COGS and Inventory
For product businesses:
Method 1: Percentage of Revenue
If COGS is consistent (e.g., 35% of revenue):
Weekly COGS Payment = Forecasted Revenue × COGS % × Payment Timing
Example:
- Week 1 revenue: $40,000
- COGS: 35% = $14,000
- Supplier terms: Net 30
- Week 5 cash outflow: $14,000 COGS payment
Method 2: Inventory-Based
If you buy inventory in batches:
- Project inventory needs based on sales forecast
- Schedule purchase orders
- Account for supplier payment terms
Example:
- Week 1: Order $25,000 inventory for projected sales weeks 3-6
- Supplier terms: 50% upfront, 50% on delivery
- Week 1 outflow: $12,500
- Week 2 outflow: $12,500 (upon delivery)
Tax Payments
Plot known tax deadlines:
- Quarterly estimated taxes
- Payroll tax deposits
- Annual payments
- Sales tax remittance
Example:
- Weekly payroll tax: $2,500 every Friday
- Quarterly estimated tax: $15,000 in Week 13
- Monthly sales tax: $3,000 first week of month
Capital Expenditures
Include any planned equipment, software, or infrastructure purchases:
- Week 6: $8,000 for new equipment
- Week 10: $3,500 for website redesign
Step 6: Calculate Ending Cash Balance
For each week:
Ending Cash = Opening Cash + Total Inflows - Total Outflows
Then set next week's opening cash equal to this week's ending cash.
Step 7: Set Minimum Cash Threshold
Determine your minimum operating cash balance. This is your safety buffer.
How to Calculate:
Method 1: Fixed Amount
Pick an absolute number based on comfort level:
- Small businesses: $10,000-$50,000
- Growing businesses: $50,000-$200,000
- Enterprise: Multiple months of operating expenses
Method 2: Weeks of Operating Expenses
Calculate average weekly operating expenses, then multiply:
Minimum Cash = Average Weekly Expenses × Target Weeks
Example:
- Average weekly expenses: $28,000
- Target buffer: 4 weeks
- Minimum cash: $112,000
Method 3: Percentage of Revenue
Set minimum cash as percentage of monthly revenue:
Minimum Cash = Monthly Revenue × Target %
Typical range: 15-30% of monthly revenue.
Plot this minimum cash line on your forecast. Any week where ending cash falls below this line requires action.
Step 8: Identify Cash Gaps
Review your 13-week forecast for:
Weeks Below Minimum Cash
These are danger zones requiring immediate action.
Downward Trends
Even if you're above minimum, a consistent decline signals future problems.
Large Swings
High volatility suggests forecasting issues or operational problems (inconsistent collections, lumpy revenue).
Negative Cash Balance
Any week showing negative cash is a crisis. You need financing or must delay expenses.
Example: Complete 13-Week Forecast
Here's a detailed example for a consulting firm:
Business Profile:
- Monthly revenue: ~$120,000
- Monthly expenses: ~$95,000
- Payment terms: Net 30 for clients, Net 15 for contractors
- Payroll: Bi-weekly, $22,000 per payroll
- Current cash: $65,000
- Minimum cash target: $40,000
Week-by-Week Breakdown
Week 1 (Dec 23-29)
Opening Cash: $65,000
Inflows:
- AR collections (Nov invoices): $28,000
- New client payment: $12,000
- Total Inflows: $40,000
Outflows:
- Payroll (Fri Dec 27): $22,000
- Rent (Dec 1, paid earlier): $0
- Contractors (Net 15, Nov work): $8,000
- Software/tools: $1,500
- Marketing: $2,000
- Total Outflows: $33,500
Ending Cash: $65,000 + $40,000 - $33,500 = $71,500
Week 2 (Dec 30-Jan 5)
Opening Cash: $71,500
Inflows:
- AR collections: $15,000
- Total Inflows: $15,000
Outflows:
- Rent (Jan 1): $6,000
- Quarterly tax payment (Jan 15): $0 (planned for Week 3)
- Insurance (annual, Jan 1): $4,800
- Utilities: $800
- Total Outflows: $11,600
Ending Cash: $71,500 + $15,000 - $11,600 = $74,900
Week 3 (Jan 6-12)
Opening Cash: $74,900
Inflows:
- AR collections: $32,000
- Total Inflows: $32,000
Outflows:
- Payroll: $22,000
- Contractors: $9,500
- Software: $1,500
- Quarterly tax: $18,000
- Total Outflows: $51,000
Ending Cash: $74,900 + $32,000 - $51,000 = $55,900
Week 4 (Jan 13-19)
Opening Cash: $55,900
Inflows:
- AR collections: $24,000
- Total Inflows: $24,000
Outflows:
- Contractors: $6,500
- Marketing: $3,000
- Total Outflows: $9,500
Ending Cash: $55,900 + $24,000 - $9,500 = $70,400
Analysis
Observations:
Week 3 is critical: Cash drops to $55,900 due to combination of quarterly tax payment ($18,000) and regular payroll/expenses.
Cash remains above minimum: All weeks stay above $40,000 minimum target.
Week 2 annual insurance: The $4,800 annual insurance payment is planned for but doesn't create a cash crisis.
Strong recovery Week 4: Collections rebound, cash increases to $70,400.
Action Items:
Monitor Week 3 closely—if AR collections are slower than projected, could approach minimum cash threshold.
Consider quarterly tax payment timing—could potentially delay by 1-2 weeks if needed (though penalties may apply).
Collections in Weeks 2-3 are critical—prioritize AR follow-up for invoices due during this period.
Improving Forecast Accuracy
The forecast is only useful if it's accurate. Here's how to improve over time:
Weekly Actual vs. Forecast Review
Every Monday, compare last week's actual cash flow to what you forecasted:
Variance Analysis:
| Category |
Forecast |
Actual |
Variance |
% Variance |
| AR Collections |
$28,000 |
$24,500 |
-$3,500 |
-12.5% |
| New Sales |
$12,000 |
$15,000 |
+$3,000 |
+25% |
| Payroll |
$22,000 |
$22,000 |
$0 |
0% |
| Contractors |
$8,000 |
$9,200 |
-$1,200 |
-15% |
Identify Patterns:
- Are collections consistently slower than forecast?
- Are certain expense categories always over/under?
- Do specific weeks (month-end, holidays) have predictable variances?
Update Assumptions:
Adjust your forecasting model based on learnings:
- If collections average 15% slower than projected, build in that buffer
- If contractor costs run 10% higher, update baseline assumptions
Track Forecast Accuracy Metrics
Ending Cash Variance:
Variance = Actual Ending Cash - Forecasted Ending Cash
Target: Within 10% for current week, 20% for 13 weeks out.
Directional Accuracy:
Did you correctly predict whether cash would increase or decrease?
This matters more than exact dollar amounts.
Common Forecasting Errors
Over-Optimistic AR Collections
Reality: Customers pay slower than you hope.
Fix: Use conservative collection assumptions. Better to be pleasantly surprised than scrambling for cash.
Forgetting Irregular Expenses
Annual insurance, quarterly taxes, equipment replacement—easily overlooked.
Fix: Maintain a calendar of all annual/quarterly expenses and plot them on your forecast.
Lumpy Revenue Not Smoothed
Big contract signed in Week 1, but payment comes in Week 8. Forecasting it all in Week 1 creates false confidence.
Fix: Forecast cash based on payment timing, not revenue recognition.
Not Accounting for Growth
If you're growing 10% monthly, your COGS, contractor costs, and other variable expenses are also growing.
Fix: Build growth assumptions into both revenue and expense forecasts.
Managing Cash Flow Problems
Your forecast shows a cash gap in Week 7. Now what?
Option 1: Accelerate Inflows
Improve Collections:
- Call customers with outstanding invoices
- Offer early payment discounts (2/10 Net 30)
- Tighten payment terms for new work
- Require deposits or milestone payments
Increase Immediate Revenue:
- Run promotions to pull forward purchases
- Offer prepayment discounts for annual contracts
- Upsell existing customers
- Sell inventory or assets
Tap Financing:
- Draw on line of credit
- Invoice factoring or AR financing
- Short-term business loan
- Personal funds or investor capital
Option 2: Delay Outflows
Negotiate Payment Terms:
- Ask vendors for extended terms (Net 30 → Net 60)
- Delay non-critical purchases
- Negotiate payment plans for large expenses
Reduce Discretionary Spending:
- Pause marketing campaigns
- Delay hiring
- Cut non-essential software or services
- Postpone capital expenditures
Restructure Fixed Costs:
- Renegotiate rent
- Shift to variable contractor costs vs. fixed salaries
- Move to usage-based pricing for tools
Option 3: Combination Approach
Usually the best answer combines multiple tactics:
Example: Week 7 shows $15,000 cash gap
Actions:
- Call top 5 customers with $42,000 outstanding AR, collect $18,000 (Week 5-6)
- Delay $8,000 equipment purchase from Week 7 to Week 10
- Negotiate Net 45 terms with largest vendor, freeing up $6,000
- Draw $10,000 from line of credit as buffer
Result: Week 7 gap eliminated, cash position strengthened.
Cash Flow Forecast Tools
You don't need expensive software. Here are options:
Spreadsheet (Best for Most Small Businesses)
Pros:
- Complete control and customization
- No recurring cost
- Easy to understand and audit
- Can start with templates and build from there
Cons:
- Manual data entry
- Requires spreadsheet skills
- No automatic bank feed integration
Recommended: Google Sheets or Excel
Accounting Software Built-In Forecasting
QuickBooks, Xero, FreshBooks all offer basic cash flow forecasting.
Pros:
- Integrates with existing data
- Automatic updates from actuals
- Easy to maintain
Cons:
- Limited customization
- Often less detailed than 13-week model
- May not handle complex scenarios well
Best For: Simple businesses with straightforward cash flows
Dedicated Cash Flow Tools
Pulse, Float, Dryrun, Fluidly
Pros:
- Purpose-built for cash flow forecasting
- Scenario modeling
- Bank feed integration
- Professional visualizations
Cons:
- Monthly subscription ($50-$200/month)
- May be overkill for small businesses
- Still requires human judgment and updates
Best For: Businesses with complex cash flows or multiple entities
Cedar's Recommendation
Start with a spreadsheet. Build the 13-week model manually. This forces you to understand your cash flows deeply.
After 3-6 months, if you're spending >2 hours/week on forecasting, consider upgrading to dedicated tools.
Advanced Cash Flow Techniques
Once you've mastered the 13-week forecast, add these advanced techniques:
Scenario Planning
Build three forecasts:
Base Case: Most likely outcome based on current trajectory
Optimistic Case: 20% better revenue, faster collections, lower expenses
Pessimistic Case: 20% lower revenue, slower collections, higher expenses
This range shows your cash position under different scenarios.
Example:
| Week |
Base Case |
Optimistic |
Pessimistic |
| 13 |
$65,000 |
$87,000 |
$38,000 |
If pessimistic case falls below minimum cash, you need contingency plans now.
Cash Runway
Calculate how long you can operate before running out of cash:
Runway (weeks) = Current Cash / Average Weekly Burn Rate
Example:
- Current cash: $120,000
- Average weekly burn: $18,000
- Runway: 6.7 weeks
If runway is under 13 weeks, it should appear in your forecast. Take action before you hit zero.
Sensitivity Analysis
Test how changes in key assumptions impact cash:
Example:
"If AR collections slow by 2 weeks, how does that affect ending cash?"
"If we increase marketing spend by $5,000/month, what happens to cash position?"
This helps prioritize which levers to pull during cash crunches.
Monte Carlo Simulation
For sophisticated forecasting, use probability distributions instead of single-point estimates:
- Revenue: 80% chance of $100-120K, 20% chance of $80-100K
- Collections: Average 35 days, standard deviation 8 days
- Expenses: Average $22K/week, standard deviation $3K
Run 1,000 simulations to get probability distribution of outcomes.
Result: "85% confidence we'll have at least $40,000 cash in Week 13"
This requires advanced spreadsheet skills or dedicated software but provides powerful insights.
Conclusion
Cash flow forecasting transforms your business from reactive to proactive. Instead of wondering if you can make payroll, you know your cash position for the next 13 weeks.
Start with the basics:
- Build a 13-week cash flow model
- Update it weekly with actuals vs. forecast
- Identify cash gaps before they become crises
- Take action to accelerate inflows or delay outflows
The businesses that master cash flow forecasting sleep better, make better decisions, and survive downturns that kill their competitors.
If you need help building cash flow forecasts or implementing financial operations for your business, Cedar Operations provides fractional CFO services and financial systems implementation. Let's talk.
FAQ
How often should I update my cash flow forecast?
Weekly minimum. Update every Monday with last week's actuals and adjust forward projections based on new information.
What if my forecast is consistently wrong?
Review your assumptions. Are you over-optimistic on collections? Underestimating expenses? Track actual vs. forecast variance to identify patterns and adjust.
Should I forecast by day, week, or month?
Week for most businesses. Daily is overkill unless you have severe cash constraints. Monthly hides timing issues that weekly forecasts reveal.
How do I handle seasonal businesses?
Use year-over-year data. If you make 60% of revenue in Q4, your forecast should reflect that pattern. Build cash reserves during peak season to fund slow seasons.
What's the difference between cash flow and profit?
Profit is revenue minus expenses (accounting concept). Cash flow is actual cash in minus cash out (liquidity concept). You can be profitable but cash-poor if customers pay slowly or you're investing in growth.
Can I forecast cash flow if revenue is unpredictable?
Yes, but use scenarios. Build conservative, base, and optimistic cases. Focus on the conservative case for decision-making.
What if I need more than 13 weeks of visibility?
Build a separate annual cash flow forecast at monthly granularity for strategic planning. Use the 13-week model for operational management.
How much cash should I keep in reserves?
Minimum 4-8 weeks of operating expenses for stable businesses. 12-26 weeks for high-growth or seasonal businesses. More is better—cash is optionality.
CEDAR OPERATIONS