If you own a seasonal business, you know that cash flow is a crucial part of your finances. Cash flow is the money that comes in and out of your business. Seasonal business owners should calculate projected cash flow often to manage finances all year. If you only operate for part of the year, you need a plan for your seasonal business cash flow.
Seasonal business cash flow
Seasonal businesses face unique challenges when it comes to calculating projected cash flow. You depend on one season’s revenue to carry you through the year.
To avoid a negative cash flow from operations and keep your cash flow management for small business on track, be proactive with financial planning. Try these four tips to manage your seasonal business’s cash flow.
1. Plan for expenses
Plan to pay more of your business expenses during your busy season. Try to negotiate terms with debtors that allow you to make larger payments during the season. For example, if you pay an annual rent for a seasonal location, ask if you can pay more during your busy season and less in the off season.
Seasonal businesses may pay some expenses year round. These expenses might include, rent, insurance, and permits. Try to cut your costs down to just the essentials during the off season.
Many expenses you can lessen are variable costs. Variable costs change with sales volume, and might include raw materials or shipping expenses. When sales are high, variable costs are also high. And when sales are low, variable costs are also low.
Make a list of all your costs. Separate your variable costs from fixed costs, or expenses that do not change with sales. Make sure you can cover your fixed costs year round. Then, check for variable expenses that you could reduce. For example, you might look for a different vendor that charges lower rates.
2. Strengthen collections
For a healthy seasonal business cash flow, you want to get paid as fast as possible. Review your customer bill payment policy for ways to speed up your billing process. Extending credit to customers can be beneficial, but you may need to give customers a shorter time frame to pay you. For example, if you give customers 30 days to pay you, you might want to shorten the number of days to 15.
Invoice each customer soon after you make a sale. Record the invoices you send and collect in your small business accounting books. Follow up with late-paying customers to keep money flowing into your company.
You might want to collect deposits from customers. A deposit is a sum of money the customer pays up front. A deposit puts money in your accounts before the season starts, speeding up your business cash flow. If a customer cancels after a deposit payment, you don’t lose the entire total sale amount.
3. Secure funding
Prepare to pay expenses during your low season. Save some revenue during your high season so you can pay expenses when business slows. You should have cash saved up for six months of expenses. Consider a business bank account to organize your funds.
To help make payments during your off season, you may want to open a line of credit. Avoid spending large amounts of credit and try to pay your credit debt during your busy season. You could also apply for a small business or seasonal business loan.
4. Manage products and services
Leftover inventory is not good for seasonal business cash flow since money does not move through your company. You can sell extra inventory at a marked down price when your season comes to a close. The smaller amount of revenue helps your cash flow more than the cost to store the inventory.
If you own a seasonal service business, marking down services is like discounting products. For example, lawn care companies can offer discounts shortly before or after the season.
You could earn income in your off season by diversifying your products or services. For example, if a wedding planner is busiest in the spring and summer. The wedding planner could make income in the off season by planning holiday parties.
Even as a seasonal business owner, you need to manage your books all year round. Complete your recordkeeping with Patriot’s online business accounting software in a few simple steps. Get started today with free setup and support.