Cash is the lifeblood of any organization. For businesses deep in, or on the brink of, financial distress, one of the primary ways leadership can keep operations afloat is to get a firm grip on liquidity.
Across industries and turnaround scenarios, the humble 13-week cash flow model is a fundamental tool for executives to check the pulse of their organizations.
The 13-week cash flow, compared to other types of financial statements, offers the most granular view into the money moving in and out of a business. Relying on this model instills a sense of financial discipline when organizations need it most. Most importantly, the 13-week cash flow is an objective, repeatable model that helps dispel false optimism among leadership teams.
Developing a 13-week cash flow isn’t brain surgery. But at the same time, not all 13-week cash flow exercises are created equal. Whether building the tool in-house or engaging a third-party adviser, four important factors can make or break your model:
C-level support: Managing a 13-week cash flow extends beyond the finance department’s purview. Smart discussions with senior leadership (including CEOs, COOs and CFOs) at the beginning of this process — and regular intervals throughout — can uncover valuable context to inform the model. Whether an external adviser or internal employee creates the tool, he or she must stay current on anything happening across the business that could affect assumptions in the 13-week cash flow.
Constant communication benefits management as well. Particularly in organizations that historically lacked a cash-centric culture, regular check-ins with the C-suite serve as a wake-up call to spur change.
Accuracy controls: Even though the 13-week cash flow only looks out over the next business quarter, it’s imperative to have checks and balances that continually confirm the accuracy of your model. As with any form of analysis, garbage in, garbage out. Developing mechanisms to test your model — for instance, generating weekly variance reports to compare the prior week’s actual cash flow against your original projection — instills confidence that your tool generates results that are as close to reality as possible.
This is another opportunity to engage senior leaders. A regular dialogue with key stakeholders gives the 13-week cash flow preparer insight into events that could materially impact their model and a chance to adjust accordingly.
Actionable insights: A valuable 13-week cash flow is more than a report; it’s a short-term playbook. Distressed organizations should be able to link liquidity assumptions in their 13-week model to tangible business decisions. With precise insight into your cash peaks and valleys, it’s easier to prepare contingency plans ahead of projected pinch points.
A 13-week cash flow tool doesn’t provide enough time to improve liquidity by changing your pricing structure or bringing new, more profitable products to market. It can, however, be the impetus for communicating with vendors (before missing or underpaying an invoice) or working with banks to adjust borrowing terms.
Functional expertise: When vetting third-party advisers to develop your 13-week cash flow, recognize the importance of functional expertise. Professionals who have sat in the CFO or controller seat (i.e., who have proven finance department credentials) have the context necessary to help your team make 13-week cash flow models actionable, home in on the most relevant elements and devise a custom plan of action for managing liquidity.
Managing cash is not always easy — especially in the face of economic uncertainty, industry disruption and changing customer habits. With a thoughtful approach to 13-week cash flow modeling, business leaders gain the visibility they need to right the ship.