Agent skill
cash-flow-forecasting
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SKILL.md
Cash Flow Forecasting
name: cash-flow-forecasting description: Cash flow forecasting — direct and indirect method, 13-week
When to Activate
- User needs to build a short-term (13-week) or long-term cash flow forecast
- Modeling working capital dynamics and their cash impact
- Calculating liquidity runway or debt service coverage
- Choosing between direct and indirect cash flow forecasting methods
- Managing cash in a distressed, high-growth, or seasonal business
Core Concepts
Direct vs Indirect Method
Direct method (receipts and disbursements):
- Forecasts actual cash inflows (customer receipts) and outflows (vendor payments, payroll)
- Built from operational data: invoices, payment terms, payroll calendars
- More accurate for short-term forecasting (1-13 weeks)
- Harder to reconcile to P&L; requires granular data
Cash Receipts:
Collections from customers
Interest received
Other receipts
- Cash Disbursements:
Vendor payments
Payroll and benefits
Rent and facilities
Tax payments
Interest payments
Debt principal repayments
Capital expenditures
= Net Cash Flow
+ Opening Cash Balance
= Closing Cash Balance
Indirect method (starts from net income):
- Adjusts net income for non-cash items and working capital changes
- Aligns with P&L forecast; easier to produce from a financial model
- Better for long-term forecasting (monthly/quarterly, 12-24 months)
- Less precise on timing of individual cash flows
Net Income
+ Depreciation & Amortization
+ Stock-Based Compensation
+/- Changes in Working Capital
- Increase in Accounts Receivable
+ Decrease in Accounts Receivable
+ Increase in Accounts Payable
- Decrease in Accounts Payable
+/- Change in Inventory
+/- Change in Deferred Revenue
+/- Other Working Capital
= Cash from Operations
- Capital Expenditures
= Free Cash Flow
+/- Financing Activities (debt draws/repayments, equity)
= Net Cash Flow
13-Week Cash Flow Forecast
The 13-week forecast is the gold standard for short-term liquidity management. It covers one full quarter with weekly granularity.
Why 13 weeks:
- Provides enough visibility to avoid liquidity surprises
- Weekly granularity captures payment timing (biweekly payroll, monthly rent, quarterly tax)
- Standard requirement for revolving credit facilities and distressed situations
- Rolling — each week, drop the completed week and add a new week at the end
Structure:
=== 13-WEEK CASH FLOW FORECAST ===
| Wk 1 | Wk 2 | Wk 3 | ... | Wk 13 | Total
RECEIPTS
Customer collections| ____ | ____ | ____ | | ____ | ____
- Current AR | ____ | ____ | ____ | | ____ | ____
- Aged AR | ____ | ____ | ____ | | ____ | ____
- New billings | ____ | ____ | ____ | | ____ | ____
Other receipts | ____ | ____ | ____ | | ____ | ____
Total Receipts | ____ | ____ | ____ | | ____ | ____
DISBURSEMENTS
Payroll & benefits | ____ | ____ | ____ | | ____ | ____
Vendor payments | ____ | ____ | ____ | | ____ | ____
Rent / facilities | ____ | ____ | ____ | | ____ | ____
Insurance | ____ | ____ | ____ | | ____ | ____
Tax payments | ____ | ____ | ____ | | ____ | ____
Interest payments | ____ | ____ | ____ | | ____ | ____
Debt repayments | ____ | ____ | ____ | | ____ | ____
Capex | ____ | ____ | ____ | | ____ | ____
Other disbursements | ____ | ____ | ____ | | ____ | ____
Total Disbursements | ____ | ____ | ____ | | ____ | ____
NET CASH FLOW | ____ | ____ | ____ | | ____ | ____
Opening Balance | ____ | ____ | ____ | | ____ |
Closing Balance | ____ | ____ | ____ | | ____ |
Revolver Draw/(Paydown)| __ | ____ | ____ | | ____ |
Available Liquidity | ____ | ____ | ____ | | ____ |
Working Capital Modeling
Working capital changes are the primary source of cash flow timing differences vs the P&L.
Days-based approach:
Accounts Receivable = Revenue × (DSO / 365)
Inventory = COGS × (DIO / 365)
Accounts Payable = COGS × (DPO / 365)
Net Working Capital = AR + Inventory + Prepaid Expenses
- AP - Accrued Expenses - Deferred Revenue
Cash Impact = ΔWorking Capital = NWC_prior - NWC_current
(Increase in NWC = cash outflow; Decrease in NWC = cash inflow)
Key metrics to track:
| Metric | Formula | Typical Range |
|---|---|---|
| DSO (Days Sales Outstanding) | AR / Revenue × 365 | 30-60 days |
| DIO (Days Inventory Outstanding) | Inventory / COGS × 365 | 30-90 days |
| DPO (Days Payable Outstanding) | AP / COGS × 365 | 30-60 days |
| Cash Conversion Cycle | DSO + DIO - DPO | 0-90 days |
Seasonal working capital: For businesses with seasonality, model working capital monthly using seasonal patterns from historical data, not annual averages.
Debt Service Coverage
Debt Service Coverage Ratio (DSCR) = Cash Available for Debt Service / Debt Service
Where:
Cash Available = EBITDA - Taxes - Maintenance Capex - Working Capital Changes
Debt Service = Interest Payments + Mandatory Principal Repayments
Minimum DSCR:
- Investment grade: > 2.0x
- Non-investment grade: > 1.5x
- Distressed / covenant minimum: > 1.1x
Liquidity Runway Calculation
Liquidity Runway = Available Liquidity / Monthly Net Cash Burn
Available Liquidity = Cash & Equivalents
+ Undrawn Revolver Capacity
- Minimum Operating Cash (typically 2-4 weeks of disbursements)
Monthly Net Cash Burn = Average monthly cash outflows - Average monthly cash inflows
(Use trailing 3-month average, adjusted for known one-time items)
For startups and pre-profit companies:
Runway (months) = (Cash + Undrawn Committed Facilities) / Monthly Burn Rate
Example:
Cash: $15M
Undrawn facility: $5M
Monthly burn: $1.2M
Runway: $20M / $1.2M = 16.7 months
Action thresholds:
-
18 months runway: comfortable, focus on growth
- 12-18 months: begin fundraising planning
- 6-12 months: actively raise or cut costs
- < 6 months: crisis mode, immediate action required
Methodology
Building a 13-Week Cash Flow Forecast
-
Map cash inflow sources:
- Aged AR schedule: when will existing invoices be collected? Apply historical collection patterns.
- New billings: forecast billings from the revenue model, apply payment terms to estimate collection timing.
- Other receipts: interest, tax refunds, asset sales (known timing).
-
Map cash outflow sources:
- Payroll calendar: exact dates and amounts from HR system
- AP aging: when are vendor invoices due? What is the actual payment pattern?
- Recurring fixed payments: rent (1st of month), insurance (quarterly), loan payments (specific dates)
- Tax payments: estimated tax dates, VAT/GST filing calendar
- Capex: committed purchase orders with delivery/payment milestones
-
Week 1-4: high confidence — based on known invoices, committed payments, payroll calendar
-
Week 5-8: moderate confidence — blend of known items and forecast assumptions
-
Week 9-13: lower confidence — primarily forecast-driven, flag assumptions
-
Reconcile to indirect method: Cross-check 13-week total against the monthly/quarterly cash flow derived from the P&L model. Significant discrepancies indicate a modeling error or missing items.
Long-Term Cash Flow Projection (12-24 months)
Use the indirect method, built from the P&L and balance sheet forecast:
| Q1 Fcst | Q2 Fcst | Q3 Fcst | Q4 Fcst | FY Total
Net Income | ____ | ____ | ____ | ____ | ____
+ D&A | ____ | ____ | ____ | ____ | ____
+ SBC | ____ | ____ | ____ | ____ | ____
+/- Working Capital | ____ | ____ | ____ | ____ | ____
Cash from Operations | ____ | ____ | ____ | ____ | ____
- Capex | (____) | (____) | (____) | (____) | (____)
Free Cash Flow | ____ | ____ | ____ | ____ | ____
+/- Financing | ____ | ____ | ____ | ____ | ____
Net Cash Flow | ____ | ____ | ____ | ____ | ____
Opening Cash | ____ | ____ | ____ | ____ | ____
Closing Cash | ____ | ____ | ____ | ____ | ____
Collection Pattern Analysis
Build a collection curve from historical data:
Invoice Month | Month 0 | Month 1 | Month 2 | Month 3+ | Bad Debt
Collection % | 10% | 55% | 25% | 8% | 2%
Apply to forecast billings:
Jan Billings $1,000k:
Jan collection: $100k
Feb collection: $550k
Mar collection: $250k
Apr+ collection: $80k
Write-off: $20k
Templates
Cash Flow Forecast Summary
=== CASH FLOW FORECAST SUMMARY ===
Company: [Name]
Forecast Date: [Date]
Method: [Direct / Indirect / Both]
--- Liquidity Position ---
Current Cash Balance: $____
Undrawn Revolver: $____
Total Available Liquidity: $____
Monthly Burn Rate: $____
Runway: ___ months
--- Key Metrics ---
DSO (current / target): ___ / ___ days
DPO (current / target): ___ / ___ days
Cash Conversion Cycle: ___ days
DSCR (LTM): ___x
Free Cash Flow Yield: ___%
--- Working Capital Drivers ---
| Current | Forecast | Δ Cash Impact
Accounts Receivable | $____ | $____ | $____
Inventory | $____ | $____ | $____
Accounts Payable | $____ | $____ | $____
Deferred Revenue | $____ | $____ | $____
Net Working Capital | $____ | $____ | $____
Quality Gate
Before finalizing a cash flow forecast, verify:
- 13-week forecast is built from actual invoices and payment calendars (Weeks 1-4)
- Payroll timing matches actual pay dates (biweekly, semi-monthly)
- Tax payment dates are correct (estimated taxes, VAT/GST, payroll taxes)
- Collection assumptions are supported by historical DSO and aging analysis
- Working capital seasonality is reflected (not straight-line annual assumptions)
- Capex timing reflects actual PO commitments and delivery schedules
- Debt service payments match loan agreement terms exactly
- Revolver draws/repayments are modeled to maintain minimum cash balance
- 13-week total reconciles to the monthly indirect method forecast (within 5%)
- Liquidity runway is calculated conservatively (minimum cash buffer included)
- DSCR is above covenant minimum throughout the forecast period
- Forecast is updated weekly (13-week) or monthly (long-term) with actuals
- Confidence levels are differentiated (high for near-term, lower for outer weeks)
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