Managing cash flow is the key to success for any seasonal small business owner. Although manufacturing and sales may slow down or even cease in the off-season, the basic operating expenses remain. Insurance, taxes, rent, utilities, and salaries still have to be paid, and the business continues to incur expense of 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. The following strategies can help you avoid the pitfalls faced by many seasonal business owners and ensure sufficient cash flow during slower sales periods.

Budget for Seasonality

Creating the right budget for your small business can help you gauge performance, explore growth opportunities, and achieve your short and long-term goals. If your business is seasonal, budgeting can also help eliminate common cash flow issues.

In addition to assessing when your slow season is, note the times of year when your expenses are typically high. Maybe your payroll increases in the summer because you hire temporary employees or your fuel and heating costs are higher in the winter. Small businesses often over-estimate peak season revenue and underestimate off-season expenses, so be sure to use available historical cash flows.

When you know your expected income and expenses, you can budget accordingly. Establishing an effective budgeting process also improves your chances of success by helping you anticipate spending and profits as well as identify and address potential problems.

Forecast Cash Flow

A good cash flow forecast helps offset uncertainty by projecting your income and expenses on a monthly and yearly basis. This will allow you to budget accordingly and eliminate many of the cash flow issues seasonal businesses encounter.

Create a log of the payments you will need to make such as wages, rent, loan repayments, and taxes. Some expenses can be structured so they fit the revenue available for the season. For example, arrange with vendors to accept larger payments during or just after your peak-season and lower payments during slower times of the year.

Then list the cash that will be coming into your business, including customer payments as well as interest on savings and tax returns. Subtract outgoing cash from incoming cash to calculate how much money you will have on hand at any given time. Keep in mind that there are numerous accounting software programs that make it easy for seasonal small business owners to forecast cash flow.

Improve Inventory Management

Poor inventory management can directly impact cash flow in multiple ways, from the cost of paying for more inventory space than you need to the loss of customers who grow tired of waiting for backorders to be filled. Yet statistics show that 43% of small businesses do not manage their inventory properly.

Review your inventory regularly with the goal of maintaining the right amount and type of stock to increase sales, acquire new customers, and sustain positive cash flow. Having too much stock or too much cash tied up in slow-moving inventory can have a negative impact on cash flow, while too little stock can result in lost sales and failure to meet customer expectations.

When it comes to outdated or discontinued inventory, know when to cut your losses. Excess inventory should be marked down and sold to increase off-season revenue and reduce carrying costs.

Cut Expenses

During your slow season, look for areas where you can cut expenses to a minimum. 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.

Boost 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. For example, an accounting firm can provide bookkeeping or payroll services to small businesses. A retailer that sells beach-themed products can stock items geared towards fall and winter holidays.

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

Even the most successful seasonal businesses have trouble funding their operations. 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.

Plan for Next Season

Make the most of your off-season by preparing for the next peak season. Assess customer demand and your financial performance. Review where you stand with accomplishing your yearly goals and revise your business plan accordingly. Shop for better suppliers. Refresh stale content on your website so that it addresses your customers’ current needs. Focusing on the big picture when business hits a lull will help ensure that your company is positioned for growth when sales pick up again.

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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.