The 13-week cash flow
Northwind's next thirteen weeks, built from the September 30 balance sheet and the IRS's deposit calendar, and read for its lowest week.
Monthly runway hides the week payroll lands before the big customer pays. The 13-week cash flow doesn't. It lists every receipt and payment in the week it will hit the bank, for the next quarter, starting from today's reconciled balance. It's the direct method pointed forward: no profit, no accruals, only cash.
- Opening cashThe reconciled bank balance, not the bank app's.
- This lessonKnown itemsWhat the balance sheet already owes and is owed.
- RecurringPayroll, rent, tax deposits, on their real dates.
- Expected receiptsCollections on terms, sales on the day.
- Roll forwardReplace last week with actuals; add week 14.
Start from September 30
Northwind starts from $35,352.60, the ledger's cash after the September bank reconciliation. The bank showed a different figure because of a deposit in transit and a rent check not yet presented. Both clear in week 1 and change nothing, because the ledger already has them. Then the balance sheet tells you the first items: the supplier is owed $6,000, the trade customer owes $8,000, and the dividend declared on the 30th is due on October 15.
Payroll taxes and the sales tax return leave the bank on the government's calendar, not Northwind's. Payroll and tax dates places each one.
After that comes September's pattern, repeated with no growth. That's the conservative base case: walk-in sales of $10,260 a month, banked on the day with sales tax in them; the trade customer's $22,000 invoice paid a month later on 30-day terms; $17,000 of stock a month paid to the supplier a month later; net pay of $6,707.40 on payday; and rent, power and the sales tax return on their dates.
The low point is week 5, at $17,860, when last month's stock bill is paid before this month's sales come in. Monthly runway never shows that week. It's the number that decides whether anything else can be bought this quarter.
The 13-week forecast's job is the lowest week, not the last one.
Monthly runway
- Good at
One number, easy to compare over time
- Watch for
Blind to timing inside the month
- Best for
- Board headline, fundraising
13-week cash flow
- Good at
- Catches the low week
- Built from real bills and dates, so easy to check against the bank
- Watch for
- Only a quarter out
- Has to be rolled forward weekly to stay true
- Best for
- Tight cash, big purchases, lender conversations
Operating model
- Good at
- Links profit, balance sheet and cash
- Runs a year or more
- Watch for
- Monthly, so it can miss a bad week
- Only as good as its drivers
- Best for
- Planning the year, testing hires and prices
Step 1: Actuals in
Close last week: replace its forecast with what the bank actually did.
Step 2: Variance out
Explain any line off by more than your threshold. A late customer is a finding; a forgotten bill is a process fix.
Step 3: Roll forward
Add week 14, so the horizon stays thirteen weeks.
Step 4: Read the low point
Read the lowest week. If it's below the cushion you've set, act now, while it's still weeks away.
In this lesson: the IRS's deposit calendar and the sales tax return, placed week by week.
Pages in this lesson
1 page goes deeper, about 5 minutes in all. Read them in order, or open the one you need.
Where this lesson's rules come from
The sources behind this lesson's requirements, by kind. Background reading explains; it is never the authority for a rule. Anything marked as a convention is ours, not the rule-maker's.
- US GAAP
- ASC 230-10-45-25; 230-10-50-2 (opens in a new tab)The direct method is encouraged; an entity using the indirect method must disclose interest and income taxes paidFree after registration
- Background reading — not an authority
- Wikipedia, “Cash flow forecasting” (opens in a new tab)Cash flow forecasting, direct and indirect — backgroundFree to read
The full map is in US GAAP, and where these rules come from.
The words this lesson teaches
Each links to its glossary definition, which also names the authority behind it and the components that render it.
- 13-week cash flowA direct-method forecast of cash receipts and payments week by week for the next quarter, built from the bank balance, bills, payroll and tax dates and expected collections, and rolled forward every weekConvention
- Direct methodPresenting operating cash flows as gross receipts and payments by major class — cash from customers, cash paid to suppliers and employees. Encouraged by ASC 230, but it must still be accompanied by the reconciliation from net income
- Payroll liabilitiesWhat an employer owes on wages it has already paid — the income tax and the employees' share of Social Security and Medicare withheld from their pay, plus the employer's own payroll taxes — until it is deposited with the government. The withheld part was never the employer's money: IRS Pub. 15 calls it trust fund taxesConvention
- Payment termsThe agreed timing of payment and any early-payment discount — Net 30, Net 30 EOM, 2/10 net 30, due on receipt; the due date that aging is measured fromConvention
- DividendA distribution of earnings to shareholders, declared by the board — a liability from the declaration date and a reduction of retained earnings, never an expense
- ForecastThe current best estimate of a period's results or cash, revised as actuals arrive. A budget says what was planned; a forecast says what is now expectedConvention
In the founder glossary
This lesson’s ideas, explained for the founder running the company. Each has an entry in the founder glossary.
See also
- Cash & treasuryCash is the only balance sheet account where an independent third party, the bank, says what the balance should be. That makes it the easiest account to verify and the one where a break hurts most.
- Journal entry for payrollOn payday, debit Wages and salaries for gross pay, credit Cash for net pay and credit liabilities for everything withheld. Book the employer's own taxes separately (debit Payroll tax expense, credit Payroll taxes payable), and clear both payables when they are remitted.
- Journal entry for accounts payableWhen an approved vendor bill is entered, debit the expense or asset it bought and credit Accounts payable. When it is paid, debit Accounts payable and credit Cash.
- Journal entry for dividendsWhen dividends are declared, debit Dividends declared (or Retained earnings) and credit Dividends payable. When paid, debit Dividends payable and credit Cash. At year-end, close Dividends declared to Retained earnings.
- DSO calculatorDSO is a liquidity and working-capital metric, calculated as (Ending AR ÷ Credit sales for the period) × Days in the period.
- DPO calculatorDPO is a liquidity and working-capital metric, calculated as (Ending AP ÷ COGS for the period) × Days in the period.
- Cash conversion cycle calculatorDSO + DIO − DPO: the days between paying suppliers and collecting from customers. Negative means customers pay before suppliers are paid
- Direct method vs indirect methodThe direct method lists operating cash receipts and payments; the indirect method starts from net income and adjusts for non-cash items and working-capital changes. Both arrive at the same operating cash flow.
- Form 941 and payroll tax deposits for startupsWhat Form 941 reports, monthly vs semiweekly deposits, the $100,000 next-day rule, FUTA, the R&D payroll credit, and what your provider can’t do.
- Bank reconciliation step by stepMatch the bank statement to the books, clear deposits in transit and outstanding checks, book the fees, and reach a $0.00 difference every month.
- CashCalendarDaily heatmap of cash movement.
- CashRequirementsDue in 7/14/30 vs. available, payroll broken out.
- ForecastTableProjections dashed and labeled everywhere.