Improving cash flow within a seasonal business is no easy task, and different techniques can be applied to every business venture. You can do the basic things, such as saving money whenever you can, and then capitalising on your better sales months.
Being able to identify when the slow season is obvious. For others, it’s less obvious, a great start is the pervious years management accounts. Cash flow problems can affect almost every business at some point in the business cycle. Without trade all year round, working capital and cash flow problems in seasonal businesses can be even more pronounced.
For any business, one pager advantage of managing cash flow is through planning and regular attention to detail. In this article, we look at some of the tips for avoiding cash flow problems in seasonal businesses.
Planning for Cash Flow in a Seasonal Business
As a business owner, you know that cash flow is the lifeblood of your company. It’s important to have a steady flow of cash coming in to cover expenses and keep things running smoothly. But what do you do when your business is seasonal? How can you ensure that you have enough cash on hand to make it through the lean times? The key is to plan ahead and budget carefully. Start by taking a close look at your past sales patterns.
This will give you a good idea of when you can expect income to start slowing down. Then, create a realistic budget that takes into account your expected income and expenses. Make sure to include a cushion for unexpected expenses. Once you have your budget in place, stick to it as closely as possible. This may mean making some tough choices, but it will pay off in the long run. By planning ahead and being mindful of your cash flow, you can keep your business afloat – even during the leanest months of the year.
1. Understand the basics and get them right
Seasonal businesses are unlike any others and their situation is totally unique. Some seasonal ventures find themselves making more than enough cash in their peak periods to see them through the tougher times of the year, However, others are not quite as fortunate. If you have been running a seasonal company for a while now, you likely already have plans in place and a method of doing things your own way, though it never hurts to receive a helping hand.
Here are the basics all small seasonal businesses should look out for:
- Understand both your fixed costs and variable costs
- Find things that you can cut back on when the going gets tough
- Gather information that will help you to forecast efficiently
- Budget effectively and save cash whenever you can afford to
For a seasonal business, it is wise to cash projections that look towards the next 18 months. By doing this you can cover both the periods you thrive and the ones where your sales take a dive. Monitor your sales on a daily basis and track your sales during your busy period. By comparing your sales figures from season to season, you will be able to get a much clearer idea of your cash flow situation.
Once you have begun performing the basics correctly, you can move on to other different methods of improving your cash flow. We will walk you through these tactics now.
2. Build relationships with suppliers that last
You should always think about why you are making purchases from certain companies. What do they offer you? What advantages does this give you? If you aren’t getting everything you’d hoped you would from your suppliers, you can always move on and go elsewhere.
Look for suppliers that you actively work well with and build your relationship with them. Make sure you are doing your bit by paying your bills on time, and eventually ask about a potential discount. This may come from you agreeing to buy in bulk or committing to purchasing from them over the long-term.
If you improve your relationships with supplier, you will likely be able to improve your payment terms as well. This could help you out in periods where you know you’ll be strapped for cash and undergoing some difficulties within your business venture.
3. Make your cash flow faster
This may sound a little confusing at first, but it is a highly useful proposition. Much like how we have discussed building relationships with suppliers, you can achieve similar results through invoicing. The better your relationship is with your customers and clients, the faster they are likely to pay for your services.
Steer away from bad habits, such as not sending invoices out on time and choose to respect your customers. In turn, this will demand the same level of respect back from them to you. At the end of the day, you want to receive payment for your services as quickly as possible and the best way to do that is to send out your invoices on time; this is a great way to increase cash flow.
This technique is commonly known as turnkey invoicing, which basically means you send invoices as soon as possible after completing work. You can also think about offering multiple payment options to your clients and customers, which will be beneficial to them and speed up the purchase cycle in many cases.
Here are just a few things you can do in this area:
- Offer a small discount for early payments
- Offer seasonal offers for early payment in return
- Offer discounts on purchases for part-payment upfront
Always be firm and clear in your expectations in regard to receiving payment. Your clients need to know that it is mandatory for them to pay on time, and anything else will be deemed as unacceptable.
4. Use your time wisely to increase your income
You always need to take advantage of any and all free time that you have as a business owner. With this time, you can concoct new sales and operational strategies that will help to improve the cash flow of your seasonal business venture.
Try to be a motivational figure within your company and encourage your team members to find new sources of revenue. This will very much be a different process for each individual business, depending on many factors. The truth is that as the business owner, you likely know your company better than anyone else, so go with your gut when you are leading your employees down a certain path.
Could your team hold the key to unlocking more cash and taking your seasonal venture to the next level? It is very possible indeed. Perhaps they have provided ideas in the past that you have thus far been unable to put to the test, and now you want to see if they could fill the void during your more difficult periods (the downtime). Why not try it out, what do you have to lose?
This may lead you to taking your business in a new direction and treading a path that you haven’t in the past. Your free time should be used to brainstorm ideas and discover the next ticket to better cash flow within your business venture. By getting others to join in with the process you will have a greater chance of making more promising discoveries. After all, two heads are better than one.
5. Analyse your year-round expenses
Keeping a decent cash flow is really difficult for each entrepreneur. Regardless of whether you’re on target to convey long-term productivity, it’s difficult to exchange on the off chance that you don’t have cash in the bank to buy more stock or cover any bills – yet are there certain bills you don’t have to pay throughout the entire year?
As a seasonal business venture, you might be acquainted with having workers come and go on an occasional premise. It very well might be clear there’s a remove point where the expenses of having staff could descend, fundamentally. Nonetheless, you may likewise be prone to pay for things like software subscriptions lasting through the year.
Investigate the little, regular payments you’re making each month. Do you have to be able to utilise those creative programming tools each month, or approach libraries of inventive stock during the leaner times of trading?
It is safe to say that you are paying for utilities consistently – could you discover different tariffs that let you deal with your instalments even more successfully, every quarter for instance? Are your renting costs covering timeframes when hardware or vehicles aren’t being utilised? In an intense business climate, numerous providers may welcome a reconsidered (lower) contract that assists with saving you in business as long as possible.
6. Consistently take stock of your stock
The more time you spend maintaining your business, the better your senses ought to be for how much stock you need to keep on the rack. However, money put into buying stock cannot be used to pay your bills.
Notwithstanding, in a seasonal business you’re managing more grounded, longer patterns in purchaser conduct. External influencers – the things you can’t change throughout everyday life – are undeniably bound to be at a full-scale level over the long-term (changes in the economy affecting your production network or clients’ supply chains) than on a micro level (changes in climate temporarily).
In view of this, it delivers profits to be proactive in overseeing stock that can assist you with expanding your pay during the slower exchanging periods. Selling less popular things at a markdown, for instance, when your season reaches a conclusion.
The income you acquire by dealing with your stock proactively may even compensation the expenses of putting away the stock during a poorer time of sales.
7. Work All-Out During the Peak Season
As a business owner, you are always looking for ways to improve your bottom line. One way to do this is to make sure that you are making the most of your peak season. During this time, customers are more likely to be interested in your product or service and you can take advantage of this by working all-out. This means putting in the extra hours to get the job done and making sure that your team is doing the same. By doing this, you can ensure that you are bringing in as much revenue as possible and improving your cash flow.
In addition, working all-out during the peak season can also help you to build up a reserve of customers who will be more likely to return when business is slower. By making the most of your peak season, you can ensure that your business is successful all year round.
8. Find Anchor Clients to Carry You Through Your Off-Season
For businesses, having a few key anchor clients can make all the difference between thriving and just getting by. Anchor clients are those that provide a constant stream of guaranteed income over a period of time. They can help to cover all the bills during difficult months, making them an essential part of any business plan. But how exactly do you find these clients?
One way is to focus on quality over quantity. It’s better to have a few high-paying clients than a large number of low-paying ones. Another option is to look for businesses that have been in operation for several years. They’re more likely to be stable and have the budget to pay for your services. Finally, don’t be afraid to ask for referrals from your existing clients. If they’re happy with your work, they’ll be happy to recommend you to others. By following these tips, you can soon build up a portfolio of reliable anchor clients.
Key points from this article
- Always budget carefully and pay attention to both your fixed and variable costs
- Encourage fast payment of invoices by offering incentives
- Plan forward and provide a better future for your seasonal business
- Make savings whenever you can and cut out costs you don’t need all year round
- Get in touch with us if you are facing cash flow troubles
Seasoned professional with a strong passion for the world of business finance. With over twenty years of dedicated experience in the field, my journey into the world of business finance began with a relentless curiosity for understanding the intricate workings of financial systems.