Cashflow Forecasting in a Pandemic

Always the “gold standard” by which credit and investment decisions are made, cash flow analyses now also provide the means to monitor the health of your client’s business and provide immediate input necessary for critical management decision-making.

A balanced picture of the future health of a business not only benefits clients, but ultimately all stakeholders.

Everything Has Changed

COVID-19 and the associated shelter-in-place orders around the country have impacted business leaders enormously. Owners are challenged by immediate term liquidity issues, medium-term operational concerns and long-term business model viability. During this time, buyers and sellers have been reluctant to accept the risk associated with small business acquisition. Lenders and investors are on the sideline, too. Everyone is waiting for the dust to settle to see how deeply the economic downturn may go.

Post-COVID market realities will mean sources of credit and liquidity will require more, and better, company information. While challenging to the individual business owner, this can be expected to yield a greater consistency in small business financing or harvest strategies. The crucible of the post-COVID marketplace will ramp up urgency; business owners need to understand and respond with increasingly accurate and effective strategies.

Nothing Has Changed

This decade, 10,000 baby boomers will turn 65 every single day, according to the Pew Research Center, and they face the reality of slowing down and considering retirement. This demographic phenomenon first appeared about eight years ago and it is expected to last until 2029. COVID-19 has not changed this.

This demographic owns millions of US businesses, and a surge in transitions means more financial activity and capital demands will be coming to the market just as the effects of COVID-19 and the associated shelter-in-place requirements are being felt.

We know the level of liquidity in the marketplace is at unprecedented levels. The pressure to create investment in business assets can be expected to increase. The issue for business owners is “how can I learn to be more effective at raising capital or selling my business?” The pressure for investors and lenders will be “how do I get the information I need to put money to work while effectively managing risk?”

You Have to Tell the Story

This market pressure requires a consistent and predictable response from business owners. Lenders, investors or buyers will all demand the same accurate accounting and financial information. Constituents of a business want to know what has happened and what will happen.

Accounting and finance management are the key to how the story gets told. Accountants should look back at a client’s performance with precision and accuracy and provide the data that allows the folks in corporate finance to look forward and to create projections with wisdom and insight.

It seems simple: Start with available cash, add or subtract the results of company operations, add or subtract changes in balance sheet accounts and solve for ending cash. When done properly, it is telling a story with numbers.

The 13-Week Cash Flow (Rolling 13)

There is something magic about 13 weeks, it is one-quarter. It is a period of time long enough for trends to become apparent, but short enough to spot inconsistencies and correct course.

A quarter represents a familiar and comfortable period of time to evaluate assumptions and performance. The 13-week cash flow is the basic building block for a full set of projections.

To get started with preparing a 13-week cash flow, this checklist can be helpful:

Cash Flow Planning Checklist for Business Owners

  • Historical Financials (three years preferable)
  • Detailed Operating Data
  • Estimates of Future Performance
  • Identified Alternate Scenarios
  • Detailed Inflows and Outflows
  • Employee Information (Increases and Decreases)
  • Other Balance Sheet Information

The three basic tools that provide the basis for looking forward are:

  • Balance Sheet — provides a snapshot of a firm’s financial position at a given point in time
  • Income Statement — summarizes a firm’s revenues and expenses over a given period of time (moving picture)
  • Statement of Cash Flows — reports the cash impact of a firm’s inflows and outflows over a given period of time

Preparing a cash flow forecast begins with looking back. Historical financial information can provide valuable scale for making projections, but more importantly it provides the relationships between numbers that are essential when making estimates.

Sensitivity Analysis

The initial 13-week cash flow also serves as the basis of an important technique in financial management called the sensitivity analysis. A sensitivity analysis is a method for modifying inputs or assumptions in a financial model based on different expected economic outcomes or levels of performance. When an initial forecast is based on good historical information, these modifications, when entered into a model, provide alternative views of the future and help users to draw more educated conclusions.

Sensitivity analyses are generally conducted in groups and might look like: “best case,” “likely case” and “worst case.” These three iterations, when viewed together, will provide perspective and insight for users of the forecast.

This is an extremely valuable technique to sharpen the accuracy and relevance of financial projections, and it is particularly vital in a time of economic volatility and stress. This point cannot be over-emphasized.


For your business owner clients, cash flow forecasting can be a big undertaking. It is a process that educates and informs stakeholders and provides a tool for communicating the expected status of the business.

It is a process best devised and begun years before a crisis, but it needs to be done as soon as possible. For lenders and investors, a cash flow forecast is kind of an insurance policy against catastrophic oversight and a tool to help match the capital availability they offer with the true capital needs of the company. The smart business owner is wise to recognize and embrace the power of due diligence and the power of cash flow forecasting.

Do you need any help in creating forecasts or updating them? Send an email to Know more about us on


Link to the original post:

Comments are closed

Share This

Copy Link to Clipboard