How to Balance Cash Flow in a Seasonal Business

When you’re considering the importance of cash flow, it’s necessary to look at cash flow for a seasonal business.

Seasonal businesses are very common, especially in locales where travel and tourism are important industries, where the weather has an impact on outdoor business operations, and where retail sales slow during the winter months.

Think the buying habits surrounding toys around the holidays, swim suits, skis, and fireworks, among others—these seasonal businesses have special challenges with cash flow and deal with stocking up for the big season and lasting through the thin seasons.

Techniques for managing cash flow in a seasonal business

Most seasonal business owners employ one or more of these classic techniques:

• Find alternative business options for the slower part of the year.
• Hire employees only during the busy times and lay them off when the season ends.
• Develop banking relationships that allow for the extra flexibility required.
• Close their doors and reopen the next year for the busy season.
• Save part of the earnings during the busy time to cover expenses during the slower part of the year.
• Arrange for vendor relationships that allow them to make larger payments when cash flow is high and lower payments during slower times of the year.
• Find ways to create off-season demand through partnerships with other businesses, by offering deals to local customers, or by moving sales online.

Nurture forecasting

Seasonality makes forecasting more important than ever. A good cash flow forecast will help with analysis of funds available and costs throughout the year.

Develop monthly sales, spending, and cash flow forecasts. Build the sales and spending forecasts on drivers (units, channels, product lines, and so on) that match the information you get from your accounting. Make sure the cash flow forecast manages the nuances of sales on account, payments on credit, managing inventory, and other cash-sensitive items such as debt repayment and asset replenishment.

Maintain your forecasts with monthly review and revisions

Forecasts alone are never accurate enough; it takes going back to them, month by month, to compare actual results to forecasted results.

As things change—and they always do—use the regular review to link changes in sales and spending to expectations for cash on hand.

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Stay on top of changes

Consider the huge difference between, on the one hand, asking a bank for an emergency loan on a Tuesday to make payroll the next week; or, on the other hand, applying for a special bridge loan months in advance because you know your seasonality and you anticipate needing some extra working capital to tide you through.

Banks, investors, managers, and partners all react much better to changes you anticipate than to changes that come without warning. Make sure they know about your seasonality and the ways you deal with it.

Adapt standard business processes

Some expenses can be structured so they fit the revenue available for the season. For example, you could negotiate with vendors to accept larger payments during the busy season and smaller payments during the off season.

Management of inventory is critical. Any inventory at the end of the season should be marked down and sold at a discount to increase off-season revenue and reduce carrying costs. Some suppliers might even allow merchandise to be returned for a credit against next season’s orders.

For some seasonal businesses, a line of credit might be appropriate. Check with your banker about programs available. Your local Small Business Development Center (SBDC) office also has information about programs offered by the U.S. Small Business Administration (SBA), your state’s business development department, and many other financing sources for small businesses.

Finally, consider diversifying into off-season alternative products or services. For example, in many parts of the country landscaping companies take on snow removal services in the winter months. What are the alternatives in your industry or area? Are there potential opportunities to sell online or outside your region?

The off-season could also be the perfect time to take a vacation or revise your business plan—you can use the slower time to prepare for the next season by assessing customer wants and your business’s financial performance.

Managing cash flow in a seasonal business is undoubtedly tricker than in a business that does not experience seasonal fluctuations, but it can done with proper planning, forecasting, and regular review.