Managing cash flow in a seasonal business is difficult. You may have a lot of money coming in for three or four months, and then it slows by 50% or more. In this scenario, it’s imperative to know the most common seasonal cash flow problems and then work to rectify them.
First, let’s consider the unique features and aspects of a seasonal business before going into management tips and techniques.
Seasonal cash flow accounting is difficult because:
Your costs may be lower during non-busy seasons, but you’ll also have a lot of difficult decisions to make. For example, you may need to decide if the business is worth keeping open during slow periods or if you can keep on all of your workers.
Cash flow seasonal mistakes can have a ripple effect throughout the business if you make them early on after the busy season ends.
Additionally, cash flow in a seasonal business can be impacted due to issues outside of your control, such as economics or climate. In this case, if you didn’t put money aside in a high season, you may find your business doesn’t have the cash flow to continue its operations.
Managing your cash flow in any business is difficult. However, you can apply certain techniques and tips for managing your cash flow to any business. If you’re running a seasonal business, the following tips can help make sure that you have a strong financial standing season after season.
We’re going to recommend a lot of great tips that you can follow to maintain positive cash flow even in your seasonal business, starting with one that is arguably the most important.
Every business has ups and downs, and it’s up to you to use the data you have available to do two things:
Once you identify these seasons, it’s time to begin monitoring your cash flow.
Cash flow in a seasonal business must be monitored. You'll need to keep tight constraints on your cash flow to ensure that you’re not spending too much money too quickly. Ideally, you’ll use software that will:
Managing and monitoring your cash flow are two of the most important things you can do for your business. If you find cash flow is falling too much to be feasible in the long term, you can secure financing or find ways to cut back on expenses.
Seasonal businesses go through high and low periods. To prepare for those low periods, put money aside when times are good.
During your busiest season, you should have a surplus of cash that you can tuck away and use during your off season. These savings can help you stay afloat when sales wane during your slow periods.
Place these funds in your business bank account and allocate them for use during your off season.
Managing cash flow in a seasonal business should include scenario planning. What-if scenario planning can help you prepare for the worst and best outcomes.
Every business should engage in best- and worst-case scenario planning and have different plans in place to handle each of these scenarios. For seasonal businesses, it’s even more important to focus on scenarios because of the unpredictable nature of the business.
Building and maintaining good relationships with suppliers is an important part of doing business. When you remain in good standing with your suppliers, you can negotiate lower prices or work out a credit arrangement for your slow periods. Having a good relationship with your suppliers can also reduce the risk of a surprise “breakup” that forces you to find a new supplier who charges more.
Cash flow in a seasonal business fluctuates throughout the year. One way to manage your cash flow effectively is to build up a cash cushion. Essentially, you’re creating an emergency fund for your business that you can use to get through your slow periods.
To build up a cash cushion:
Consider placing your funds in a business savings product that will generate interest while you build up your cushion.
Having a cash cushion will give you peace of mind that you will have enough cash to cover operating expenses during the off-season.
The biggest issue with cash flow in a seasonal business is that demand wanes and sales decline after the high season.
One way to improve your cash flow during these slower periods is to find ways to create demand. For example, if you own a landscaping company, winter may be your slow season. During this season, you may offer discounts or special services to prepare customers’ landscaping for spring and summer.
Creating demand during the off-season can help improve sales during these periods and reduce the risk of a cash shortage.
Managing cash flow in a seasonal business can be challenging, but Cash Flow Frog can simplify the process. It’s easier to avoid cash shortages when you’re prepared and can predict when they may occur. That's exactly what Cash Flow Frog can help you do.
With Cash Flow Frog, you can create:
Cash Flow Frog uses data from your accounting software to ensure your forecasts and scenarios use accurate data.
Cash flow management is important for every business, but it’s even more important for seasonal businesses that may experience prolonged slow periods. With the right tool, you can take steps now to ensure that you have enough cash to stay open even during the slow season.
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