Black Friday can kick off the most profitable period of your revenue cycle or signal the start of your slow season. Seasonal small business owners still need to pay basic operating expenses like rent, insurance, taxes, utilities, and salaries, even when manufacturing, sales, or services have come to a halt. In addition, you may need funds to cover the costs of ramping up for next season.
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If you generate the bulk of your revenue during certain times of the year, it is important to have a strategy to ensure sufficient cash flow during slower sales periods.
Budget for seasonality.
Managing cash flow is critical to the financial success for any seasonal business, and budgeting can eliminate many of the cash flow issues business owners face. It’s important to understand your fixed costs versus your variable costs and make sure you’re budgeting to cover them accordingly.
Note the times of year when you typically have the largest expenses. For example, your fuel and heating costs may be higher in the winter, which is your off-season, while your payroll is higher in the summer because you hire temporary employees. Focusing on the drivers behind each expense makes it easier for you to determine whether they are in alignment with your allocated budget.
Forecast your income and expenses.
A good cash flow forecast is an essential tool that projects your income and expenses throughout the year. Without a plan in place, seasonal business owners may run short of the cash they need to cover day-to-day operations, pay employees, or purchase inventory. When you know your expected income and expenses, you can budget accordingly.
Review income and expenses from previous years to help you set an accurate goal. Where possible, structure expenses so they fit the revenue available for the season. You may be able to arrange with vendors to accept lower payments during slower times of the year. If you need to purchase new equipment, it makes sense to plan for it when your cash flow is high. It goes without saying that you’ll need to exercise the discipline needed to save earnings during your peak season in order to build up a cash reserve to cover off-season expenses or unexpected hits to your company wallet.
Keep an eye on your cash flow.
The best way to improve your cash flow is to monitor it. Your cash flow analysis lets you track the flow of funds in and out of your business. Develop the habit of examining your finances at least monthly. Some small business owners review and analyze 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.
Summit Financial Resources sees cash flow as the lifeblood of any small business. If your cash is falling short, we can help you get more of it. For many small businesses, our core product, Invoice Factoring, is key to their ongoing cash flow strategy.
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.
Look for areas where you can lower expenses during your slow season. For example, many seasonal businesses hire additional employees during busy times and lay them off when the season ends. You may be able to negotiate with the owner of your building to lower your rent during the off-season. If your business declines dramatically during the off-season, you may want to consider closing your doors. Make sure you budget for your personal and business expenses during that time.
Make your business less seasonal.
In addition to cutting costs, investigate ways to generate 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. Diversifying into alternative products or services might result in making your business less seasonal.
Explore business financing.
Business financing is a valuable tool for managing your cash flow all year long. Working with a partner like Summit Financial Resources will help ensure that you have stabilized cash flow to help cover shortages whenever they arise. Our invoice factoring, asset-based lending, and inventory financing programs allow you to harness the cash in your accounts receivable, smooth out your cash flow, and help your seasonal business weather the slow times.
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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.