How it is built
Each week follows the same line: opening cash + receipts - payments = closing cash, and each closing balance becomes the next week's opening balance.
- Opening cash comes from the bank balance, not the books.
- Receipts come from the AR aging, placed in the week each customer usually pays, plus expected new sales and other cash in.
- Payments come from the AP aging, plus payroll, rent, loan payments, tax remittances and other recurring items.
Thirteen weeks is one quarter: short enough to see exactly which week payroll and rent collide, and long enough to spot a shortfall while there is still time to act.
Worked example
Minimum cash balance: $50,000.
| Week | Opening | Receipts | Payments | Closing |
|---|---|---|---|---|
| 1 | $85,000 | $42,000 | $51,000 | $76,000 |
| 2 (payroll and rent) | $76,000 | $38,000 | $69,000 | $45,000 |
| 3 | $45,000 | $47,000 | $33,000 | $59,000 |
Week 2 dips $5,000 below the minimum. Knowing that two weeks ahead, the client can chase a large invoice or move a supplier payment by a few days.
Common mistakes
- Starting from the book balance. Uncleared cheques and deposits make it wrong. Start from the bank.
- Placing collections by due date. If customers pay 12 days late on average, the forecast should too.
- Forgetting lumpy items. Annual insurance, quarterly tax instalments and bonuses are the usual surprises.
- Never checking it. Compare each week's forecast with actual, or errors repeat.
Related terms
- Minimum cash balance: A minimum cash balance is the lowest bank balance a business agrees it should hold at any point, so it can cover payroll and bills through the gaps between customer payments.
- Forecast vs actual: Forecast vs actual is the comparison of what a forecast said would happen with what actually happened over the same period, line by line.
- AR aging (accounts receivable aging): An accounts receivable (AR) aging is a report that lists unpaid customer invoices grouped by how long they have been outstanding, typically current, 1 to 30, 31 to 60, 61 to 90 and over 90 days past due.
- AP aging (accounts payable aging): An accounts payable (AP) aging is a report that lists unpaid supplier bills grouped by how long they have been outstanding or how soon they are due.
- Cash runway: Cash runway is how long a business can keep operating before it runs out of cash if nothing changes.