How Can Seasonal Businesses Better Manage Cash Flow?

Guest Article

While there are many advantages to running a seasonal business, one of the primary challenges is managing cash flow – having enough money on hand to get ready for the busy season, making the most of the revenue generated in season, and having enough money on hand to survive in the off season.

With these tips, small business owners with seasonal businesses can better manage cash flow to optimize opportunities before and during the busy season while also learning ways to save for and get through down time.

1. Plan your expenses properly as you gear up for the busy season and ensure that you never fall behind on bills in the off-season

  • Get three months ahead on bills, keep a calendar of bills and scheduled payments.
  • Record all business transactions in a online bookkeeping program (QuickBooks® is a popular one). In addition to keeping track of revenue, don’t forget to include expenses in end-of-year financials, which will help decrease your taxable income.
  • Regularly review your business bank statements to confirm all transactions and avoid unnecessary fees, like those for insufficient funds and overdrafts.
  • By preparing a budget in advance, you’ll be more likely to put enough money away while revenues are strong and be ready for a dips in income.

2. Have a full understanding of your business’s working-capital needs to cover seasonal inventory , payroll, cash, and accounts payable monthly)

  • Inventory: How much do you have? How much do you need to fill orders? How often do you order? Can you buy in bulk during the off season to save money? Wholesalers typically provide better price points for bulk purchases.
  • Cash: It’s critical to track everything you spend and earn daily to know how much cash you have at any given time. Most business owners rely only on bank account statements or current balances, but checks may have been cut that haven’t posted in the bank, which can lead to significant miscalculations.
  • Accounts payable: Negotiate with vendors to get credit and longer terms and lower payments during the off-peak season and larger payments during the high season to help you optimize your cash-flow cycle, and be sure to make all payments on time and as negotiated to stay in good standing with your vendors..
  • Accounts receivable: Invoice clients on time and collect regularly, and negotiate with your customers for faster payment terms and turn as many as you can into electronic funds transfer payments to create a smaller working capital gap. If a client falls behind on payments, consider whether to continue doing business, or renegotiate your payment terms. Don’t be lax about following up on late payments.

3. Prepare for off-season cash-flow crunches by securing a loan or line of credit in advance: Several months before you may need it, meet with your banker about obtaining a business loan or line of credit. For some businesses, too, it may be advantageous to negotiate for interest-only payments during the slow times and full monthly payments (interest and principal) during the busy time. If you do take out a line of credit, make sure to understand its “cleanup clause contractual provision” –that’s bank-speak for how long you’ll need to bring your balance down to zero. Usually, it’s for a period of 30 to 60 days. Be prepared!

4. Budget and forecast properly: Budgeting is critical for seasonal-business success. Effective cash-flow forecasting will keep you on top of your cash availability throughout the year. If you need help creating and using cash-flow forecasts, this template from SCORE can help.

5. Staff appropriately: Staffing appropriately during and between high seasons is essential, as insufficient staffing during your busy season can mean lost sales and overstaffing during your low season can mean extra expenses that you don’t need and can’t afford.

  • Consider hiring independent consultants on a temporary basis and scale down your staff in the off-season.
  • Another option, if it fits your business, is to bring on employees on a commission-only basis, so that you’re paying less during your down time.

For seasonal business owners, off-season is the time to review every aspect of your business and prepare for your busy season. Once you are in your busy season, it’s essential to stay on top of your daily financials to leverage opportunities to generate revenue and strengthen your position when things slow down.

About The Author

Steven Cohen is president of Excelsior Growth Fund (EGF), which helps New York State small businesses grow by providing streamlined access to business loans and advisory services. Steven has a bachelor’s degree from UC Berkeley and a master’s in public administration from Harvard’s Kennedy School

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