Guide To Managing Cash Flow For A Seasonal Business

Practical information about managing cash flow in a seasonal business:
main challenges and ways to deal with them.

The old adage “slow and steady wins the race” may explain the classic children’s fable where the tortoise beats the hare, but anyone who has ever struggled with seasonal business cash flow knows the real world doesn’t always work that way.

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A company can often go through peaks of high demand — a flurry of customer orders, the need to quickly hire emergency staff, a backlog of requests — but they are almost always followed by some deep valleys.

There are many businesses, for example, where a particular holiday season that spans a few weeks or even a few days will account for the vast majority of its annual revenues

Products and services that are oriented around particular weather conditions experience much the same thing. If you’re running a snow plowing business, for instance, you’re not expecting a lot of calls between June and the end of November.

The problem is that when the peaks hit, the volume of work can be so intense that planning for the long-term can become difficult. The priority is on making the most of the season while it lasts, perhaps hoping it will be enough to carry you through the rest of the year.

Occasionally, though, peak periods don’t generate the level of business a company expected. A firm that depends on hot weather might experience a particularly short or rainy summer. Holiday spending might dip because of an unforeseen macroeconomic factor, like a short-term recession.

This is not unlike rolling the dice in gambling. You hope the ball will land on the right place on the roulette wheel. If not . . . you’re out of luck.


Seasonal Business Cash Flow Problems: The Consequences


When that happens, managing cash flow in a seasonal business can become almost overwhelming, because by neglecting to plan ahead, you’ve essentially dug a financial hole that threatens to bury your business completely.

Depending on the shortfall, you might not be able to repair, replace or upgrade the equipment necessary to operate during the next peak period.

Staff you’ve trained and come to rely on may need to move onto a more dependable source of short-term work.

In the worst-case scenario, an inability to cover basic overhead may force a seasonal business to shut its doors completely.


Understanding Cash Flow Risks (And How To Manage Them)


Even if you’re not an accountant, you need to recognize that an influx of sales does not always equal positive cash flow. Your expenses might be high, for example, or the value from each order might not be enough to justify the resources required in fulfilling them.

Assess Your Costs & Determine What You’ll Need

Not all costs should be treated equally, either. Some, like your rent or lease on office space, might be fixed, but others (such as supplies that directly support the services you provide) might vary based on seasonal demand. One of your first steps should be assessing your costs and determining what you can comfortably predict you’ll need.

Manage Cash Flow on a Consistent Basis 

Next, establish a regular schedule for analyzing your costs, revenue and strategies to cover off unexpected dips in cash flow, even during peak periods. While a lot of seasonal businesses leave this kind of work for their downtime periods, that might be too late. You’ll have fewer headaches by managing cash flow on a consistent basis.


Boost Seasonal Cash Flow By Identifying Growth Opportunities


Another element of planning includes examining the full scope of what you offer your market and whether there are overlooked areas where you could increase references, either during your peak season or outside it.

A retailer that typically counts on the holidays, for example, may be focused primarily on their local market. Adding more offerings via e-commerce could bring them a lot more customers, potentially on a global scale.

If you’re limited to a local market, consider premium offerings. Here’s an example:

  • A company that offers harbour cruises, for example, could introduce a special package for private tours, or tours that include live music and other kinds of entertainment.

Other businesses may be able to expand what they do so they can keep busy long after their typical peak season ends. Here’s an example:

  • A roofing company, for instance, might be able to continue working throughout the winter by offering to clean eavestroughs that get filled with snow and ice, or by helping with interior home repairs.

Before you hang up a “closed” sign for a significant portion for the year, keep in mind the doors that might still be open to you.


Maintain Seasonal Cash Flow Through Financing


Besides giving you greater peace of mind, proactively strategizing for down periods and conducting ongoing forecasting and analysis will turn your original business plan into more of a living document. This can help demonstrate to potential lenders that you’re a worthy application for a line of credit or short-term working capital loans.

Of course, you don’t want to get deeper in debt, so make sure you take the steps necessary to ensure you’ll be able to repay a loan on time.

Some of your action items here should include:

There are lots of simple and affordable tools available to create invoices, send clients reminders and to track outstanding payments. Make sure manual processes or human error don’t leave you waiting for a bill to be paid. Offer multiple payment options if possible.

Many companies understand the cyclical or seasonal nature of other businesses. You can often negotiate timelines for payments that are reasonable and create less anxiety for both parties.

If you have a particularly strong peak period, carve out a portion that you can use if needed for a weak one. This might be a better investment in your future success than opening a new location or hiring more staff.


Conclusion


Much like selling, marketing and hiring, managing cash flow in a seasonal business is a skill you continuously develop. And you will get better at it if you maintain good practices, like always looking for ways to lower your operating expenses (through leasing, for instance) and finding more ways to serve your anchor clients.

If you have colleagues or friends in non-competing seasonal businesses, discuss their approach and apply their lessons learned. Consider hiring third parties, like an accountant, to help. Commit to improving your financial literacy and business acumen.

Eventually, you won’t be just avoiding the nightmare of seasonal cash flow problems. You’ll be moving from a position of mere survival to long-term growth.

About The Author:


Shane Schick is the founding editor of 360Magazine.com, host of the Owned Media Observer podcast, a fashion blogger at Menswhere.ca and a content marketing consultant in areas like technology, marketing, finance and other areas of business. Learn more at ShaneSchick.com.