Profit and cash rarely move together in the short term. A profitable month can end with less cash than it began, because customers paid late, stock was bought ahead of a season, or a tax payment fell due. The 13-week cash flow forecast exists to answer one question the profit and loss account cannot: will we have enough cash in each of the next thirteen weeks, and if not, in which week does the problem start?
Why thirteen weeks?
Thirteen weeks is a quarter. It is long enough to see a shortfall coming while there is still time to act, by chasing collections, rescheduling payments or drawing on a facility, and short enough that most of the numbers come from documents that already exist: open invoices, open bills, purchase orders, payroll and loan schedules. Beyond a quarter a forecast leans more on assumptions; within it, it can be built largely from the ledger.
What is the direct method?
The direct method forecasts actual cash in and cash out by category, rather than starting from profit and adjusting for non-cash items as the indirect method does. For a short-term forecast it is the right choice, because the people managing cash think in receipts and payments, and because each line can be traced to its source and checked against what actually happened.
How do you build it from the ledger?
- Opening balance: the bank balances reconciled to the statements, for every account the company can actually use.
- Customer receipts: open receivables from the aged balance, each placed in the week it is realistically expected to be paid, based on that customer’s actual payment behaviour rather than the contractual due date.
- New sales: expected collections from sales not yet invoiced, from confirmed orders or the pipeline, kept on a separate line so their uncertainty stays visible.
- Supplier payments: open payables and committed purchase orders, scheduled by agreed terms and the company’s payment runs.
- Payroll and recurring costs: salaries, rent, utilities and subscriptions, in the weeks they actually leave the account.
- Tax and statutory payments: VAT, withholding, social insurance and other obligations, on their filing calendar.
- Financing: loan repayments, interest, facility drawdowns and any owner funding or distributions.
- Closing balance per week, compared with the minimum cash the business needs to operate safely.
In Odoo most of these inputs already exist: the aged receivable and payable reports, open purchase orders, and journal items with due dates. The forecast itself usually lives in a spreadsheet or a planning tool fed from those reports, but every line should trace to the ledger or to a named, written assumption.
How does the weekly roll work?
Every week the past week drops off and a new thirteenth week is added. The opening balance is replaced by the actual reconciled balance, open items are refreshed from the ledger, and the assumptions for the remaining weeks are revisited. The roll should take hours, not days. If it takes longer, the inputs are not coming cleanly from the system.
Why does variance review matter?
A forecast is only as good as the last time it was checked. Each week, compare what was forecast for the week just ended with what actually happened, line by line. Large variances have an explanation: a customer who pays later than assumed, a supplier paid early, a cost nobody listed. Fix the assumption, not just the number. Over several weeks this review is what turns a spreadsheet into a reliable tool, and it shows the owners which parts of the forecast deserve confidence.
The point of a cash forecast is not to be right. It is to be wrong early enough to do something about it.
Who should own it?
The forecast belongs to finance, but its inputs come from sales, purchasing and operations, and the decisions it prompts belong to the owners or management. In the companies where MFT acts as Virtual CFO, the 13-week forecast is reviewed in a short weekly cash meeting: the closing balance per week, the lowest point in the quarter, the variances from last week, and the actions agreed to protect the tight weeks.