Managing cash flow is crucial for the survival and success of any business. A 13-week cash flow forecast is a projection of a company's expected cash inflows and outflows over a 13-week period. This tool helps companies anticipate their cash needs and make better-informed decisions.
However, private equity firms and creditors have an additional motivation to use this tool. Private equity firms typically invest in companies with the expectation of receiving high returns within a specific timeframe. They have an interest in protecting their equity investment and ensuring that their portfolio companies can meet their financial obligations in order to optimise value creation. A 13-week cash flow forecast allows them to monitor closely the financial health of portfolio companies and take corrective measures if necessary. It also helps them plan for future investments and exits.
Similarly, creditors who have invested debt capital in companies are exposed to credit risk and have an interest in protecting the debt capital they have invested. They need to ensure that their debtors have the ability to repay their debt on time. A 13-week cash flow forecast is usually requested by creditors when their debtors enter periods of financial distress, as a result of debt restructuring negotiations. It allows creditors to track their debtors’ cash positions and take appropriate actions during the periods that their debtors are experiencing financial distress. This includes further negotiating new terms, further restructuring the debt or ultimately accelerating the debt and appointing receivers.
In conclusion, a 13-week cash flow forecast is a valuable tool for any business, but it's particularly important for private equity firms and creditors. These stakeholders require it to protect their debt and equity investments and ensure that their investee companies can meet their financial obligations as they fall due. By providing insights into a company's cash inflows and outflows over a 13-week period, this tool can help debt and equity investors make informed decisions and enforce corrective action upon investee companies where contractually permitted and when necessary.
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About the author
Sabbir Rahman is Managing Director of Langdon Capital. He has held prior roles with Morgan Stanley, Lazard and Barclays Investment Bank. He has executed over £60 billion in notional value of transactions across financing, M&A and derivatives with global corporates, private equity funds and financial sponsor groups.
About Langdon Capital
With a network of 700+ alternative investors, Langdon Capital raises debt and equity capital between £1m and £25m for high-growth and innovative companies in the technology, environmental impact and renewable energy sectors, who are preferably beyond a Series A funding round or equivalent, to help them fulfil their paths to profitability and growth ambitions.
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This is not financial advice or any offer, invitation or inducement to sell or provide financial products or services or to engage in any form of investment activity.
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