13-week cash flow forecast

Why thirteen weeks

Thirteen weeks is a quarter. The horizon is short enough to be planned week by week and directly from payment flows – rather than derived from the profit and loss account – and long enough to see a squeeze coming with time to act. The format originates in Anglo-American restructuring practice and has become the standard in Germany.

Worth placing correctly: it is not a statutory concept. The horizons prescribed by law are different ones – twelve months for the going-concern forecast, 24 months for imminent illiquidity, three weeks for distinguishing a temporary payment lag from illiquidity. The 13-week forecast is the instrument through which those tests are operationalised and documented.

Direct rather than indirect method

Planning is done directly: expected receipts from receivables using realistic payment behaviour, expected payments by due date – suppliers, wages, social security contributions, taxes, rent, amortisation, interest. No accruals, no period-based figures. What counts is the bank balance at the end of each week.

Deriving cash indirectly from earnings works for an annual plan but not here: it obscures exactly the shifts between weeks that the forecast exists to reveal.

The four mistakes that make it useless

1. Payment terms instead of payment behaviour. Planning with agreed terms rather than what customers actually do is too optimistic – and in a crisis payment behaviour deteriorates further.
2. Forgotten mandatory payments. Social security contributions, VAT prepayments, wage tax, insurance premiums and loan amortisation fall due regardless of the situation and are the most common source of nasty surprises.
3. No plan-versus-actual analysis. Without a weekly comparison the forecast learns nothing. The variance analysis is the real value, not the projection itself.
4. Only one version. Without a view of what happens if a receipt fails to arrive or financing is delayed, there is no way to determine the room for manoeuvre.

What it is used for

• Early warning and steering – seeing bottlenecks in advance and prioritising payments.
• Bank reporting. In standstill and restructuring agreements, a rolling 13-week forecast with variance analysis is frequently agreed as a covenant.
• Evidence of financing through the period in a restructuring concept under IDW S 6.
• Data basis for the ongoing tests of illiquidity and imminent illiquidity – and therefore for the early crisis detection duty under section 1 StaRUG.

Useful outside a crisis, too

In private equity portfolio companies the 13-week forecast is often part of standard reporting with no crisis in sight. The reason is the same as in a restructuring: it is the only instrument that answers the question “will the money last?” with a date rather than an opinion.