This comprehensive guide outlines a strategic approach to cash flow forecasting specifically tailored for agencies, centered around a 13-week rolling forecast system. I share my battle-tested method that combines daily monitoring with three-tiered revenue tracking (guaranteed, probable, and stretch revenue), while maintaining multiple scenario models for different market conditions.

The approach emphasises the importance of maintaining a six-month cash buffer and breaks down operational expenses, with particular attention to labor and software costs which typically comprise 80% of total expenses.

The system is automated through a combination of XERO accounting software and custom Google Sheets models, with weekly reviews that cover actual numbers, pipeline projections, expense commitments, and risk assessment.

The core philosophy emphasises preparation over prediction, using this framework not just for forecasting but as a decision-making tool for investments and strategic planning.

It's not about predicting the future perfectly – it's about being prepared for multiple scenarios...

The Approach

Drawing from both my experience running multiple businesses and working with agencies over the years, I've developed a comprehensive yet practical approach to cash flow forecasting that's particularly vital in the agency world. Let me share what I've found works best, combining strategic thinking with tactical implementation.

The Forecast

The foundation of effective cash flow forecasting starts with a 13-week rolling forecast – I've found this timeframe to be the sweet spot. It's long enough to spot trends but short enough to maintain accuracy. In our agency, we've made this a daily ritual, updating our numbers first thing to start the week & each day with clarity.

Understanding revenue patterns is crucial. We analyse our historical data over 24-month periods, which has helped us identify critical seasonal patterns. This knowledge helps us plan accordingly, building reserves during strong months to cushion the slower periods.

Let me break down our forecasting approach into its key components:

The Breakdown

Revenue tracking is segmented into three (3) tiers:

- guaranteed revenue (existing contracts and retainers, which we discount by 5% for safety)
- probable revenue (pipeline opportunities weighted by likelihood), and
- stretch revenue (potential upsells and new business). We've learned to be conservative here – I typically apply a 50% cut to pipeline projections.

For operational expenses & overhead, we maintain a detailed breakdown of fixed versus variable costs. In our agency, we've discovered that human resources (labour) & software costs typically represent about 60% of our costs, with technology and tools accounting for another 20%. This granular understanding helps us identify where we can flex our spending during leaner periods.

What's often overlooked but absolutely critical is building in stress testing. We maintain at least three modelled scenarios in our forecast:

- Base case (current trajectory)
- Conservative case (20% revenue drop)
- Stress case (30% revenue drop with fixed costs maintained)
- And sometimes more, with variable models that let you define specific parameters to shoot forward what could happen in the short, medium and long term future.

This minimum three-scenario approach has saved us multiple times, especially during unexpected market shifts.

The Buffer

One practice that's proved invaluable is maintaining a minimum cash buffer equivalent to around six months of operating expenses. I know this might seem excessive to some agency owners, but it's been a lifesaver during unexpected client churn or sudden market changes.

A key insight I've gained is the importance of automating this process. We use a combination of our XERO accounting software and custom Google Sheets models, but the key is having real-time visibility. Every week I pull in actual bank balances, outstanding invoices, and upcoming expenses, giving us a clear picture of our current cash position.

The Process

For practical implementation, I recommend starting with a simple weekly review process:

1. Update actual numbers from the previous week

2. Adjust pipeline projections based on sales team feedback

3. Review expense commitments for the coming weeks

4. Check cash buffer status

5. Identify any potential risks or opportunities

Remember, cash flow forecasting isn't just about predicting the future – it's about creating a framework for making better decisions. We use our forecast to time investments, and make strategic hiring decisions.

The most valuable lesson I've learned is that success in agency finance isn't about avoiding slow months – they're inevitable. It's about building a financial structure that turns these challenges into manageable events rather than existential crises.

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Predicting The Future

Critically, don't just focus on the numbers. Create a weekly dashboard that tracks key leading indicators (signals):

- social media impressions
- marketing campaign changes
- pipeline velocity
- client meeting frequency
- client calls booked
- and proposal win rates.

These 'signals' often signal cash flow changes before they hit your bank account. It's a good idea to track these intangible signals as potential indicators as they enhance the gut-feel of potential intent and effectiveness from your current marketing.

You see, if you treat everything in silo, like a machine, you miss out on subtleties of human behaviour that do actually have an impact on measurable metrics.

As an example, if your forecasting is showing x, and you're predicting based on actual measured numbers and results what might happen next, having actual real-intent based signals trending up or down, does allow you to get a sense of whether your intangible marketing that is often hard to track, is going to be effective resulting in a more favourable outcome from your above modeled scenarios, or conversely, if it's not - which might mean you lean into the worst case scenarios for upcoming decision making. Which ultimately does impact where you end up financially.

Important to remember, these intent-based signals, are not measurable KPI's. Understanding what is a measurement of something in the world vs. a guess is really critical.

Just because we have a dashboard with numbers that go up and down doesn't mean that it's connected to anything that's actually happened, or will happen. As an example, Pipeline Velocity is not a KPI, as it doesn't actually "measure" anything. It's a forecasting mechanism, and it can be a highly volatile and unstable forecasting mechanism.

You cannot measure past or current performance using a guess about the future, and as an example that's what Pipeline Velocity actually is.

Remember, the future does not predict the past!

I mention intent based signals, such as Social media engagement/impressions, Client meeting frequency, Prospect calls booked, Proposal win rates and so on simply because, if I'm going to pull a wild-ass guess out of the air, over years of tracking these things, I think I'll be more accurate in my guess on where we'll land financially.

It's important to remember, use all available tools at your disposal. Accurately track & measure all real-time metrics and KPIs, and get a sense of future predictions based on something beyond just gut-feel, and give yourself half a chance of predicting the future with monitorable intent-based signals.

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TL:DR - The Summary

Here's my #1 insight on cash flow forecasting: It's not about predicting the future perfectly – it's about being prepared for multiple scenarios.

The key? A 13-week rolling forecast with three critical components:

Guaranteed revenue (existing contracts, discounted 5%)
Probable revenue (pipeline deals, discounted 50%)
Operational costs (typically 80% is labour + software/tools/technology)

Most important lesson: Maintain a 6-month cash buffer. Sounds excessive? It's saved us countless times during unexpected market shifts.

Remember: In business, it's not the dips that ruin you – it's being unprepared for them.

The Foundation: Why 13 weeks? Simple – it gives you a quarter plus one week of visibility. Perfect balance between accuracy and foresight. We update ours daily using real-time accounting data.
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Strategic Planning: Create three scenarios minimum:
- Base case (current trajectory)
- Conservative (-20% revenue)
- Stress test (-30% revenue, fixed costs maintained) This approach has protected us through multiple market cycles.

Pro Tip: Don't just track numbers. Monitor leading indicators:
- Social media engagement
- Pipeline velocity
- Client meeting frequency
- Proposal win rates These signal cash flow changes before they hit your bank.

Automation is key. We use XERO + custom Google Sheets models. Weekly review process:
- Update actual numbers
- Adjust pipeline projections
- Review expenses
- Check cash buffer
- Identify risks/opportunities

Final Thought: Cash flow forecasting isn't just a financial exercise – it's your business's lifeblood. Use it to time investments, plan hiring, and turn potential crises into manageable events.