5 Ways to Manage Seasonal Cash Flow
Small businesses are not immune to the seasons. There are a variety of seasonal factors that could affect a small business, including historic trends in demand, shopping seasons and economic factors beyond an owner’s control.
Many industries and businesses are affected by seasonal occurrences, and cash flow is often at risk of being mismanaged.
I’ve seen businesses cope with downturns and constricted cash flow, and I’ve seen success by implementing a mix of preparatory and active strategies, including:
1. Know your trouble seasons
Businesses should identify the seasons when they’re most vulnerable — which often falls in the winter. As consumers save money by staying indoors, their cash isn’t coming into your business, but it’s certainly going out. With added heat and energy expenses in the winter, this can easily eat away at a budget that already suffers from seasonal afflictions. The key is to have plans in place to tackle any problems, perhaps getting an injection of capital through a working capital loan.
2. Prepare for the high seasons
We generally think of holiday shopping falling at the end of the year, but many industries celebrate different holidays throughout the year. Think of the flower shop preparing for Valentine’s Day in February and weddings in June, or a meat market preparing food for Thanksgiving. Every business needs to understand their peaks, as well as their valleys, and make sure they are prepared with inventory, staffing and advertising.
3. Always keep active on revenue streams
While it may be difficult to stay active when everything else has slowed down, it’s necessary to continue moving, thinking and innovating. Owners need to continually engineer new ideas for revenue when they see cash flow being strapped. It may come in the form of a seasonal sale to jolt foot traffic, or it could mean greater revamping of client contracts, or restructuring projects or payments due so the business will always be covered.
4. Be more effective in billing
Billing is always a critical task, and a challenging one at times. However, the financial health of the business must come first, and billing in the off-seasons needs to be done efficiently. That could mean taking a firm stance with late-paying client bill, or making their payment process easier. If checks were the only form of payment accepted, mail delays may not be the only problem — providing online and mobile options for electronic payment is one way to help sustain cash flow.
5. Don’t overburden finances
Unnecessary cash flow strains are common and easily preventable. If it’s a known fact that equipment needs to be replaced, don’t gamble with it. Relying on machinery to not break down may set a business up for more risks than just constrained cash flow. Know what needs to be done, like pursuing equipment leasing or financing, and don’t procrastinate. This will only cause issues later on when cash is tight.
If anything, investigating the various forms of alternative financing may be the solution a business owner needs, but there are always strategies to utilize that will further position the business for success in an off-season.