Managing cash flow can be challenging for any business, but when you have seasonal revenue fluctuations, it can become even more difficult. Not managing your cash flow effectively can have a significant financial strain on your business. You must prepare for the slow periods and make the most of your peak ones. Here are six tips to handle seasonal cash flow.
1. Budget Accordingly
Adjust your company's budget as the season dictates. If you know sales will be slower, this should be reflected in your budget, which means reducing expenses temporarily. Review sales histories and forecasts to get an idea of what to expect. Revise savings goals, and plan for any seasonal needs. Adjust your budget based on metrics that impact on your cash flow.
2. Figure Out Different Revenue Streams
Create a different revenue stream for the offseason. It can improve your business cash flow when you need it. Determine what you can offer when your main source of revenue isn't making ends meet.
"Landscapers focus on leaf-blowing and snow removal with their trucks, employees and equipment once the summer is over," says Rohit Arora at Forbes.* "Ice cream shops can refocus on other types of desserts, including hot chocolate. Conversely, a ski resort might offer tubing or hiking/biking activities during warm weather. Another revenue boost during slow months is to offer gift cards and other types of pre-sale discounts at the end of the peak season and during slow months."
3. Maintain a Cash Reserve
Maintain a cash reserve to ensure the stability of your business during slow periods. This will help you get through regular downtime as well as pay for unexpected expenses. Try regularly saving a certain percentage of revenue. This can be adjusted during slow periods. Open a business savings account specifically as your cash reserve so it's there when you need it.
4. Prioritize Accounts Receivable Year-Round
For healthy cash flow, prioritize accounts receivable throughout the entire year. This will ease the burden of the offseason’s revenue shortage. Issue invoices promptly using a digital invoicing and payment acceptance platform. Make sure terms are clear, including late fees, and follow up regularly or automatically.
5. Improve Inventory Management
You should be improving your inventory management to avoid overstock when it makes more sense to have the cash you used to purchase it.
"Record your inventory flow regularly so you can measure any seasonal changes," says SellBrite co-founder Michael Ugino.** "Map out this flow on a calendar to visually understand how it fluctuates over time. Adjust your supply orders to accommodate demand increases or decreases at certain points in the year. By consistently tracking your inventory flow, your supply orders will match the amount of inventory you’re selling. You earn a maximum amount of revenue by always meeting demand and cash isn’t tied up in extra supply. The result? Your cash flow stays positive and strong."
6. Look into a Loan or Line of Credit
If you know seasonal cash flow issues are imminent, it might make sense to apply for a business loan, which can help you cover costs. A loan can help you cover operating costs during slow seasons, smooth out cash flow gaps, purchase inventory ahead of busier seasons, and manage seasonal staff costs. A revolving business line of credit can also help in these areas and may offer more flexibility. Talk to your bank to determine which is the right option for your business, and to ask about any promotional offers.
Managing seasonal cash flow can be a major challenge, but with the right preparations, you can make it work. With a realistic budget, a healthy cash reserve and loan or line of credit, you can go into the season with the right financial tools. If you can also improve your inventory management and accounts receivable processes and find a new revenue stream, you can be set up for success year-round.
