13 Week Cash Flow Model (TWCF)

Modeling an integrated 13 Week Cash Flow Model

As I mentioned, every thirteen-week cash flow model is unique, but there are several common elements you will encounter in nearly every model.

13 Week Cash Flow Model Structure

The 13 Week Cash Flow Output

The 13 week cash flow output is the star of the show.  It is a summary of cash receipts and cash disbursements over a 13-week period (usually with 1 week of actuals). The bottom of the summary will usually contain a cash forecast that identifies any additional revolver or DIP financing required to maintain a desired minimum cash balance. The screenshot of AHP’s 13 week cash flow above is an example of such a summary. In order to arrive at this summary, however, the other elements of the model below need to be constructed.

Cash to EBITDA Reconciliation

While the focus of the TWCF is on cash, reconciling the weekly cash forecast to a weekly EBITDA forecast helps management and other stakeholders connect the dots from management’s profit forecasts which are used to support a sale or plan from emergence from bankruptcy to the company’s short term liquidity issues.

Example of an EBITDA to Cash Reconciliation in a 13 Week Cash Flow Model

Working capital roll-forwards

Forecasts for balance sheet items, most notably working capital items are critical for a 13 week cash flow model.  Assumptions about the timing of near term vendor payments, payroll, and inventory purchases often have material impact on the 13 week cash flow model.  A properly constructed TWCF will reflect those assumptions in a “roll forward” – which identifies how key balance sheet items change week by week.

The Roll-Forward Summary Output:

Roll-Forward Summary

Accounts receivable roll-forward

Opening balances will usually come from A/R aging. Forecasts for future A/R driven off days sales outstanding (DSO) and even invoice-level assumptions for larger customers. Once combined with revenue forecasts, cash receipt projections can be made:

Inventory roll-forward

Historical inventory will usually comes from a company’s inventory ledger. The roll-forward adds inventory purchase forecasts and subtracts COGS forecasts (projected on the income statement). The purchase forecast is arrived at by forecasting inventory turnover / or days of inventory on hand (DIOH). Notice the inventory roll has no impact on cash disbursements directly – only indirectly via the AP roll-forward (below).

Accounts Payable Roll-Forward

Inventory purchases are referenced from the inventory roll-forward and inventory payments are back-solved based on both days payable outstanding (DPO) assumptions as well as vendor specific invoice reviews.

Accrued Wages Roll-Forward

Accrual-based wage expense forecasts come from the income statement.  The roll-forward is then reduced by cash disbursement forecasts for wages. Because these are contractually defined payments, disbursements are usually fairly predictable and companies can generated them from their payroll systems. Accrued wages and benefits often represent the largest disbursement.

Borrowing base (revolver) modeling

For companies that are running out of cash, existing lines of credit and revolving credit facilities are often the last line of defense. However, these facilities are usually constrained by complicated borrowing base formulas and other limits that can materially reduce additional cash availability.  Being able to model the actual availability a company has will critical  for quantifying the amount of unmet funding needs requiring either DIP financing or an alternate strategy.

Additional TWCF Model Features

In addition to the elements discussed above, building an integrated 13-week cash flow model often involves the following modeling mechanics:

• Timing: Companies usually forecast on a monthly, quarterly or even an annual basis. Arriving at weekly basis forecasts thus often requires converting longer term forecasts.
• Weekly Updating: Unlike monthly, quarterly or annual models which have longer gaps between updates, the 13 week cash flow must be updated weekly. Every update adds risk of model error so it is important to construct a 13 week cash flow in a way that doesn’t break the model every time you update it
• General Ledger and Accounts Mapping: One of the most time consuming parts of modeling the 13 week cash flow is identifying, aggregating and re-framing client data. Often the historical data that you need in order to build the 13 week cash flow model is scattered, incomplete with inconsistent (or outright incorrect) general ledger and expense categories. Understanding Excel’s data and reference functions can dramatically improve productivity when working with messy client data.