← The Finance Station ~ dish 05 of 10 · the finance station

Cash Flow Forecast Drafting

Take the AR aging, the AP queue, the recurring obligations, and return the next 13 weeks of cash with assumptions called out. Most operators run cash off instinct. A forecast with visible assumptions keeps decisions grounded. The leverage is Measurement. The station's accuracy needs tracking or you're flying blind.

The job

Cash flow forecasting is the bridge between accounting and leadership. Payroll is coming. A large AP batch clears. A customer usually pays in 45 days. What’s the cash position in three weeks. Six weeks. Three months.

Right now the CFO builds a forecast in Excel. It’s built once. It’s updated when something big changes. The assumptions live in someone’s head. Revenue comes in lower than forecast. The CFO adjusts the numbers but never updates the assumptions in the model. Next forecast is built on stale thinking.

The station runs this recipe right when it reads the AR aging, the AP schedule, the recurring monthly obligations, and projects forward with assumptions visible. The CFO looks at the forecast, checks the assumptions, approves or flags. The assumptions live in the forecast, not in Excel comments.

The recipe

All seven ingredients still apply. The leverage on this dish is Measurement (Ingredient #6). The station’s accuracy needs tracking or you’re flying blind. Compare the forecast to actuals every two weeks. When the forecast misses, trace why. Was it the assumption that was wrong. Was it the input data that was stale.

Training matters. Show the station your actual AR aging patterns. How long does each customer segment typically take to pay. Context matters. The station reads the AR aging, the AP queue, the recurring obligations. The station reads seasonal patterns and prior forecasts. Guardrails matter. What never goes below a safety threshold. What requires a board alert if it happens.

How to build it

  1. Export the AR aging report by customer. How old is each outstanding invoice. Which customers pay fast, which pay slow. This is your AR pattern training data.
  2. Export the AP schedule. What invoices are queued for payment in the next 13 weeks. Which vendors do you pay on standard terms. Which have special terms.
  3. List the recurring monthly obligations. Payroll. Rent. Insurance. Utilities. Loan payments. Tax deposits. Anything that moves cash regularly.
  4. Define the cash safety threshold. Never let cash forecast below this number without a board alert. For a $5M revenue company, this might be $200K. Define it.
  5. Pull your last two months of actual cash forecasts. Did you build them. Compare to what actually happened. Where did the forecast miss. That teaches the recipe.
  6. Test on a mock run. Give the station the AR aging, AP queue, and recurring obligations from today. It drafts a 13-week cash forecast with assumptions listed. You read it. Are the assumptions correct. Are they visible. Adjust.
  7. Go live with CFO review. The station drafts. The CFO reads, flags assumptions that feel wrong, approves. Two weeks later, compare forecast to actuals. Update the recipe.

What breaks it

  • Assumptions hidden. The forecast says “cash is +$200K next week” without writing down why. Revenue assumed at $X. Collections at Y percent. Two weeks later, collections are 10 percent below assumption. The forecast was wrong. You can’t trace why because the assumption never made it into the output. Always write assumptions into the forecast, not into separate notes.
  • AR aging data is stale. The forecast reads the AR aging from a report pulled three days ago. By the time the forecast runs, three more invoices have posted. Four customers have paid. The forecast is outdated before it’s born. Query fresh AR data every morning.
  • AP schedule is incomplete. The forecast includes the invoices queued for payment but misses the recurring invoices you haven’t received yet. You always get a utility bill. You always pay rent. If the forecast doesn’t include the stuff you haven’t seen yet, it will miss.
  • Seasonality isn’t factored in. The forecast assumes even revenue across the 13 weeks. Your company has a June spike and a January dip. The forecast misses both. Pipe in the prior-year seasonal pattern.
  • Measurement never happens. The forecast runs. It’s right three times. It’s wrong once. The CFO manually adjusts. Nobody traces why it was wrong. The recipe never improves because you’re not measuring accuracy.

When it’s working

At week four, the station produces a 13-week cash forecast with visible assumptions every Monday. The CFO reviews it in 15 minutes. By week five of the month, compare the forecast to actuals. The forecast was within five percent of actual. At month two, the forecast is within three percent because the assumptions got sharper.

The signal that the recipe is sharp: the CFO is making decisions based on the forecast instead of gut feeling.

Monday Move

Export your AR aging by customer. Export the AP schedule for the next 13 weeks. List your recurring monthly cash obligations. Define your cash safety threshold. That’s the input. The station is running on Monday.

Dish 5 of 10 on the Finance Station. Build-note leverage: Measurement (Ingredient #6).