Cash always rules! If a company does not have the necessary financial resources to execute its business strategy, no business can survive over time. That’s why nothing is more important than "taking care" of cash through proactive management aimed at optimising it.
It is liquidity that keeps a company running. Therefore, it is essential to always have the necessary resources, depending on the stage of growth the organisation is in, to ensure its continuity over time.
Moreover, when volatility makes its appearance—something that usually happens suddenly and unexpectedly—having a liquidity "cushion" is the best option to quickly adapt to a new scenario or, at the very least, try to reduce the impact of the change.
There are various ways to analyse cash flows, mainly in terms of "time," where we can focus on the short, medium, or long term—time horizons that complement each other. The main "difference" lies in the level of detail possible, especially when referring to the near future.
Therefore, if we focus on short-term analysis, the "13-Week Cash Flow Model" technique can be used. Although it was developed for use during liquidity crises, it allows us to understand in detail how cash is expected to evolve in the short term.
The idea is to review the expected collections and payments for the upcoming quarter through a weekly review of each one. This allows for a detailed diagnosis of their evolution.
One of its advantages is the length of the analysis period, which is neither too short nor excessively long, allowing the identification of any warning signs that a company is running out of "oxygen" and needs a quick solution to prevent the problem from worsening.
This model stands out from other analyses because it covers a full quarter, giving it a practical advantage. This feature provides medium and long-term visibility, allowing the detection of potential future "tensions" through trend analysis.
At the same time, if it is done using the "direct method" and a detailed analysis of each line item of estimated collections and payments is performed, a "cash crisis" can be easily identified.
Moreover, the weekly analysis provides greater visibility and, above all, precision regarding what is likely to happen with the management of funds.
While there are various techniques to improve the analysis of future cash inflows and outflows, one option is to prioritise collections by their certainty, and payments by their size and importance, with payroll being recommended to top the list.
This is where automated treasury reporting can be crucial. These reports offer detailed and precise analysis of cash flows, helping finance teams make informed and strategic decisions.
However, it should be clear that the 13-Week Cash Flow Model is just one tool for cash flow forecasting that becomes more relevant during times of crisis. It will not solve the structural problems of the company, which are often "ignored" and avoided, as addressing them may involve taking adjustment measures that are not always favourable.
Therefore, this type of analysis should be used preventively to detect any decline in the company’s "oxygen levels," enabling the selection of the best available solution at any given moment.
