13-Week Cash Flow Model (TWCF)
What is a 13-Week Cash Flow Model?
The 13-Week Cash Flow Model (13WCF) is an internal, weekly cash-based analysis performed over a short period, typically 13 weeks, aiming to provide insights into a company’s cash flow position. The model is crucial for assessing a company’s financial health, particularly in times of financial distress or impending bankruptcy, providing valuable insights for lenders, creditors, and potential acquirers.
Key Learning Points
- The 13-Week Cash Flow Model (13WCF) is an internal, weekly cash-based analysis performed over a short period, aiming to provide insights into a company’s cash flow position
- The model is crucial for assessing a company’s financial health, particularly in times of financial distress or impending bankruptcy
- It provides valuable insights for lenders, creditors, and potential acquirers
- The model is based on the direct method, which distills all activities of a firm down to cash receipts and cash disbursements
How does the 13-Week Cash Flow Model Work?
The 13-Week Cash Flow Model is based on insider documents and translates accrual-based accounting into cash flow accounting using the direct method. This method distills all activities of a firm down to cash receipts and cash disbursements. The primary purpose of a 13-week cash flow statement is during the bankruptcy process, but it is also used by companies seeking to placate lenders who are concerned about liquidity events and broken covenants. The model shows pre-petition lenders, potential lenders, potential acquirers, other creditors, and the courts where the problems are and where the potential cashflow is that is accessible for a new loan or loan restructuring.
What is the Structure of a 13-Week Cash Flow Forecast?
The basic structure of a 13-Week Cash Flow Forecast is broken down into operating and non-operating cash flows.
Operating Cash Flows
Operating cash flows include cash receipts, cash collected from customers for sales or services, and cash paid or dispersed for operating activities such as merchandise, raw materials, wages, insurance, rent, taxes, etc. Operating disbursements can be those related to both current and non-current assets as long as they’re operating in nature. So, it also includes things like CapEx.
Non-operating Cash Flows
Non-operating cash flows would be financing-related or other similar expenses. At the time of compiling a 13-week cash flow statement, most spending has been cut back to the minimum. However, certain types of expenses such as expenses paid to financial advisors and legal expenses, are very commonly seen in the non-operating cash flow section.
13-Week Cash Flow Model (13WCF) – Excel Template
Building a 13WCF will analyze the weekly flow of cash through the company and help analysts identify where the problem areas may be.
Download our free 13-week cash flow template from the free resources section. The excel download will show how to create weekly forecasts and convert them into a 13-week cash flow model.
How to Build a 13 Week Cash Flow Model
Here are the steps to build a 13-week cash flow forecast:
- Gather data: collect internal, weekly cash-based data from the company’s general ledger, balance sheets, PNLs, and cash flow statements
- Convert from accrual to cash: reconcile the cash account by accounting for changes in balance sheet accounts and convert the income statement to cash
- Use the direct method: the 13-Week Cash Flow Forecast uses the direct method, which distils all activities of a firm down to cash receipts and cash disbursements
- Break down into operating and non-operating cash flows: operating cash flows include cash receipts and cash paid for operating activities
- Non-operating cash flows include financing-related or other similar expenses
- Calculate cash receipts: use base analysis to solve for cash receipts from sales, using beginning and ending accounts receivable, as well as sales
- Calculate cash to suppliers: use base analysis to solve for the actual cash spent on purchases of inventory, using beginning and ending inventory, as well as the cost of goods sold
- Calculate cash wages: use base analysis to solve for cash wages, using beginning wages payable, wage expense, and ending wages payable
- Calculate other operational disbursements: include other operational disbursements such as insurance, rent, taxes, Capex, and other prepaid and accrued expenses
- Consider non-operational disbursements: include non-operational disbursements such as interests and fees
- Determine financing implications: analyze the net cash flow to determine if financing is needed and/or if it is already available
How to Interpret the 13-Week Cash Flow Model?
The 13-Week Cash Flow Model helps to isolate the issues that are leading to poor cash receipts or increased cash consumption to address the liquidity crisis. The model helps to analyze the drivers of the cash flow and provides insights into the company’s operations, revenue forecast, expenses, and working capital. It helps to pinpoint areas where costs can be cut, inventory can be liquidated, and assets can be sold to generate cash. The model can also be used to determine the financing options available to the company and whether additional debt can be added or if a workout or restructuring is required.
Advantages of a 13-week Cash Flow Forecast
A 13-week cash flow forecast provides several advantages, including:
- Highlighting issues: it helps to isolate the issues that are leading to poor cash receipts or increased cash consumption to address the liquidity crisis
- Operating insights: it provides insights into the company’s operations, revenue forecast, expenses, and working capital
- Identifies cost-cutting opportunities: it helps to identify areas where costs can be cut, inventory can be liquidated, and assets can be sold to generate cash
- Highlights financing options: it also helps to determine the financing options available to the company and whether additional debt can be added or if a workout or restructuring is required
Conclusion
The 13-Week Cash Flow Model (13WCF) is a tool for analyzing the cash flow position of a company over a short period, usually in times of financial distress or bankruptcy. The model uses the direct method to categorize the cash flows into operating and non-operating cash flows, and provides insights for lenders, creditors, and potential acquirers. The model also assists in identifying and resolving the issues affecting the cash flow. It can determine the financing options and strategies for the company and be used to create scenarios to model future outcomes.
For more information on how to build a 13-week cash flow model please click on this link to access our bespoke training course. Discover how to identify scenarios where companies can get into cash flow trouble and build a 13-week cash flow model for a real company that filed for bankruptcy.