This scenario plays out at CPG brands more often than anyone admits: the P&L looks good, margins are healthy, revenue is growing. Then the founder checks the bank account and there's not enough cash to make payroll next week.
This isn't a sign of a bad business. It's a sign of a business that hasn't confronted the fundamental cash flow challenge of selling physical products. You have to buy inventory before you can sell it, and the gap between cash out and cash in can be months long.
P&L profitability and cash availability are two different things. Cash flow forecasting bridges that gap.
The CPG Cash Flow Gap
To understand why CPG brands have unique cash flow challenges, follow the money through a typical inventory cycle:
Month 1 (January): You place a production order with your co-manufacturer. They require a 50% deposit upfront. Cash out: $50,000.
Month 2 (February): Production completes. You pay the remaining 50% plus freight to your 3PL. Cash out: $60,000 (balance + freight + receiving fees).
Month 3 (March): Inventory is received and available for sale. You begin shipping DTC orders and fulfilling a wholesale purchase order.
Month 4 (April): DTC revenue from March sales has been collected. Your wholesale customer received their shipment in March, but they're on net-60 terms. Cash in from DTC: $40,000. Cash from wholesale: $0.
Month 5 (May): Wholesale payment from the March shipment finally arrives. Cash in: $80,000.
In this example, you spent $110,000 in January and February and didn't fully recoup it until May. A four-month cash gap. During those four months, you also had to pay payroll, rent, software subscriptions, and marketing expenses.
The P&L for this period might show a tidy profit. The bank account tells a very different story.
Why Standard P&L Forecasts Aren't Enough
Most financial forecasts are P&L-centric. They project revenue, subtract costs and expenses, and arrive at a net income figure. This is useful for understanding profitability, but it doesn't answer the question that kills companies: will we have enough cash?
The P&L misses several critical cash flow dynamics:
- Inventory purchases are not an expense until product sells. You can spend $200,000 on inventory and your P&L shows zero impact. Your bank account is $200,000 lighter.
- Accounts receivable from wholesale customers represents revenue you've earned but cash you haven't collected. The P&L counts it. Your bank account doesn't.
- Prepaid expenses like insurance premiums or annual software contracts hit cash all at once but are expensed over time on the P&L.
- Debt repayments reduce cash but don't appear on the P&L (only the interest portion does).
A company can be profitable on the P&L and run out of cash at the same time. For inventory-heavy CPG brands, this isn't a theoretical risk. It's the default dynamic.
Building a 13-Week Cash Flow Forecast
The 13-week cash flow forecast is the standard tool for managing short-term liquidity. It's a rolling weekly projection that gives you roughly three months of visibility into your cash position.
Start with Cash on Hand
Your opening balance is today's actual bank balance. This is the one number that isn't a forecast. It's a fact.
Map Out Known Outflows
Work through each week and list every cash outflow you can identify:
- Payroll: Your most predictable outflow. Enter the exact amounts for each pay period.
- Rent and occupancy: Monthly, entered in the appropriate week.
- Inventory purchase orders: This is the big one. List every outstanding PO and upcoming order with expected payment dates. Include deposits, final payments, freight, and duties.
- Accounts payable: Invoices you've received but haven't paid yet. Map them to their due dates.
- Recurring subscriptions and software: Monthly charges for your tech stack.
- Loan repayments: If you have debt, enter the payment amounts and dates.
- Tax payments: Estimated quarterly payments, sales tax remittances, payroll taxes.
Map Out Expected Inflows
- DTC revenue: Based on your sales forecast, estimate weekly DTC collections. DTC is typically collected within 1-3 days of sale via Shopify Payments or your payment processor.
- Amazon settlements: Amazon pays every 14 days. Estimate settlement amounts based on your sales run rate and Amazon's fee structure.
- Wholesale collections: Map your outstanding AR to expected payment dates based on each customer's payment terms. Be realistic. If a customer routinely pays at net-75 despite net-30 terms, forecast accordingly.
- Other inflows: Investor funding expected to close, loan draws, tax refunds.
Calculate Weekly Cash Balance
For each week: opening cash + inflows - outflows = closing cash. The closing cash of one week becomes the opening cash of the next.
Stress Test
Run at least two additional scenarios:
- Pessimistic: DTC revenue comes in 20% below forecast, one wholesale customer pays 30 days late, and you need to place an unplanned reorder.
- Break-even: What's the minimum revenue level that keeps your cash balance above zero?
If your pessimistic scenario shows a cash shortfall, you need to act now. Not when the shortfall arrives.
Common Forecasting Mistakes
Not Forecasting Inventory Purchases
This is the number one mistake. Founders forecast revenue and operating expenses but forget that growing revenue requires buying more inventory in advance. A $200,000 revenue quarter might require $80,000 in inventory purchased 2-3 months prior.
Assuming All Revenue Is Collected On Time
Wholesale customers pay late. It's not a question of if, but when and by how much. Build a collection buffer into your forecast. If your average DSO (days sales outstanding) is 45 days on net-30 terms, forecast at 45 days, not 30.
Ignoring Seasonality
Many CPG brands have seasonal demand patterns. A brand selling sunscreen needs to purchase inventory in Q1 for Q2-Q3 sales. A brand selling gifting products buys in Q3 for Q4 holiday sales. The cash outflow for inventory happens months before the cash inflow from sales.
Forgetting About Minimum Order Quantities
Co-manufacturers typically have minimum order quantities (MOQs) that may require you to purchase more inventory than you need in the short term. A MOQ of 10,000 units when you only need 3,000 means you're tying up cash in excess inventory that won't convert to revenue for months.
Not Updating the Forecast
A 13-week forecast is only useful if it's updated weekly. As actuals come in and replace forecasts, your future projections should adjust accordingly. A forecast that was built once and never updated is just a wish.
Cash Flow Is a Leading Indicator
Revenue growth is exciting. Margin improvement is satisfying. But cash is existential. You can survive a bad quarter with cash in the bank. You cannot survive a week without it.
For CPG brands, the inventory cycle makes cash flow forecasting not just important but essential. The brands that manage cash well can negotiate better supplier terms, take advantage of bulk purchasing discounts, and weather unexpected disruptions. The brands that don't manage it end up making desperate decisions. Taking bad debt terms. Running out of stock. Raising emergency funding at unfavorable terms.
A 13-week cash flow forecast takes a few hours to build and 30 minutes per week to maintain. Given what's at stake, it's the highest-return time investment a founder can make.