Maintaining sufficient cash flow is an ongoing challenge for any small business. If your business is seasonal, the weeks between Thanksgiving and the New Year can be especially trying. Black Friday can signal the start of the most pivotal period in your revenue cycle. It can also mark the time when your business comes to a virtual halt.
In a seasonal business, manufacturing and sales slow down or even cease in the off-season, but the basic operating expenses remain. The rent or mortgage, insurance, taxes, utilities, and salaries still have to be paid. In addition, your business incurs expenses when preparing for the next season.
If you rely on a certain time of the year for all your profits, it’s important to focus on seasonal cash-flow management. Cash is the lifeblood of a successful business. To ensure sufficient cash flow during slower sales periods, seasonal business owners often employ various survival techniques.
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Create a budget that addresses seasonality.
Budgeting can eliminate many of the cash flow issues a seasonal business faces. In addition to assessing when your slow season is, note the times of year when you typically have the most expenses. Maybe your fuel and heating costs are higher in the winter or your payroll is higher in the summer because you hire temporary employees. When you know your expected income and expenses, you can budget accordingly.
Develop a cash flow forecast.
The key to success in a seasonal business is managing your cash flow. A good cash flow forecast is an essential tool that projects your income and expenses throughout the year. Accounting software, such as QuickBooks, makes it easy to create a cash flow forecast.
Some expenses can be structured so they fit the revenue available for the season. For example, you may arrange with vendors to accept larger payments when cash flow is high and lower payments during slower times of the year. It goes without saying that you’ll need to save part of your earnings during the busy time to cover off-season expenses.
Monitor your cash flow.
The best way to improve your cash flow is to keep an eye on it. Cash flow analysis lets you track the flow of funds in and out of your business. Analyze your situation regularly, and develop the habit of examining your finances at least monthly. Some business owners review cash flow once a week in order to know where they stand. If you aren’t willing or able to commit to managing your cash flow, hire an expert to handle this part of your business.
Slow down payments.
While you want to avoid risking your relationships with creditors and suppliers, you might consider strategically delaying payments. Waiting as long as possible to pay your business bills (making sure, of course, that you aren’t late or in breach of an agreement), will keep the cash in your business longer. Setting up automatic or online payments will help you stay on track.
Manage your inventory.
Any inventory left at the end of the season is like money sitting on the shelf. Excess inventory should be marked down and sold to increase off-season revenue and reduce carrying costs. Some suppliers might even allow merchandise to be returned for a credit against next season’s orders. It’s also important to gauge when to stop purchasing new inventory. The holiday season may be a time when your business is high in receivables and low on inventory, but you want to avoid any additional expense at a time when you don’t have cash coming in.
Reduce expenses.
During your slow season, look for areas where you can cut expenses to a minimum. If you haven’t done this in a while, you’re likely to discover some hidden costs have crept into your budget without you even noticing.
You may be able to negotiate with the owner of your building and ask for a higher rent during the peak season and a lower rent during the off-season. Many seasonal businesses hire employees only during the busy times and lay them off when the season ends. If your business drops off drastically during the off-season, you may want to consider closing your doors during that time. Make sure you budget for your personal expenses during the closure.
Increase income.
In addition to cutting costs, investigate ways to add primary streams of revenue during your off-season. The key is to focus on who your customer is, not on what your core products are. Your customers spend money year-round, so determine what they are buying during your off-season and add those products or services.
Consider creating off-season demand through partnerships with other businesses or by offering deals to local customers. Look into opportunities to sell online or outside your region. Diversifying into alternative products or services might result in making your business less seasonal.
Explore financing options.
Business financing is a valuable tool for managing your cash flow during the off-season and all year long. Summit Financial Resources offers a number of options to help you cover shortages and even out your cash flow. Our invoice factoring, asset-based lending, and inventory financing programs allow you to harness the cash in your accounts receivable and get funds before your customers have made payment.
The Invoice Factoring process is simple: we give you a line of credit using your outstanding invoices as collateral, and your loan is repaid as your customers pay those invoices. The structure is flexible, and we also can consider inventory as collateral for the loan. With our inventory financing add-on program, you pay us back when the inventory is sold through the use of our Invoice Factoring program.
Use downtime strategically.
The off-season presents the perfect opportunity to prepare for the next business cycle. Assess customer needs and your financial performance. Revise your business plan. Create budgets that reflect seasonality. Forecasting and budgeting will help you see the big picture and be ready for the inevitable ups and downs.
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Summit Financial Resources specializes in working capital financing for small to medium-sized businesses that need increased cash flow. We provide working capital financing through invoice factoring, asset-based lending, inventory lending, and equipment financing.