Managing your cash flow with the 13-week cash flow model

You've probably heard of "cash is king". This is true, without cash you can't run your business. From my perspective, cash is the by-product of all aspects that happen in a business: such as sales, marketing, and operations efficiency.

One of the best ways to manage your cash is the 13-week cash flow model. This model shows the cash coming in and the cash going out. Generally, we look at 13-weeks because it covers a quarter of the year. You can look beyond 13-weeks to get more insight on you cash flow in the long-term.

First we look at the "Cash on Hand", the cash you have at the beginning of the week. Then we look for other sources of cash: cash sales, credit account collection, and other cash injection. Together, we get the "Total Cash Available".

We take this information and look at it against all your expenses. Your expenses include insurance, utilities, taxes, interest and bank charges, etc. Collectively, this will paint a picture or "Total Cash Out". Finally, we subtract the "Cash In" from "Cash Out" and we get "Ending Cash Position".

We do this calculation for 13 weeks (which accounts for one quarter of the year). We recommend you go beyond 13 weeks as it is easier to do a 24 week model than to keep going back to it.

The beauty of this model is that it helps you understand the following:

- Do you have enough cash to pay the bills?

- Which clients are paying on time?

- Which clients are returning and who are not?

- Unplanned costs and increasing costs?

- Who are your critical vendors?

- Is payment demand accelerating? - What can be eliminated or delayed?

These are some lessons that you might learn in the process:

- Sales take longer than you expect, check your historical close

- Clients take longer to pay than you expect - check your historical accounts receivable

- Costs are higher than you can think of off the top of your head

- Something always comes up to mess with the flow of your cash

Some tactics to help improve cash flow:

- Invoice when the job is done - don't wait

- Stay on top of your accounts receivable, call the day after it's due

- Close your books within 5 days of the month

- Fill out the cash flow model and make the time to read it regularly

- Look for opportunities to reduce expenses; shorten the cash conversion cycle

You can download the 13-week cash flow model here.

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Rob Hall is the CEO and founder of RKH Consulting. Rob has 20 years’ business advisory experience, including working at a boutique hedge fund and as an investor relations specialist at a public company. He passionately reads about business successes and failures and has researched 100’s of cases studies to expand his strategic arsenal. Like a mystery novel, he analyzes the clues of a company until a successful outcome can be determined. It is within this framework that he founded RKH Business Advisory Services and created the RKH Recalibration Framework.