Cash Management Best Practices for a Seasonal Business

As the owner of a seasonal business, you need to do all you can to manage your cash flow wisely and diligently. Although you face additional challenges compared with year-round businesses, a number of best practices will help you keep your business financially afloat through the seasonal high and low tides.

Do Year-Round Cash Flow Projections, and Update Them

Cash flow is the lifeblood of small businesses and the number one reason they fail. For seasonal businesses, it’s an absolute must to watch your cash flow and plan ahead with great care. It’s not good enough to just make projections six months ahead. You really need to maintain annual cash flow projections. That way, you’ll have the best grasp of what your challenges are through your most cash-rich and cash-poor periods.
During your busy period, track your sales and expenses frequently and compare them with previous seasons. This comparative analysis could help you to quickly assess whether you should ramp up staffing or cut back, and it might help with other key business decisions, such as ordering the right amount of inventory.
Revisit your cash flow situation once a month and pay close attention once your busy period is over. At that point, you’ll have more time to thoughtfully and diligently review and plan your business’s finances and take any necessary action.

Create and Maintain a Cash Cushion

Ideally, you should have enough of a cash cushion to pay six months’ worth of business expenses. That would likely cover you during an extended dry period. The closer your cash cushion falls toward zero, the more time you’ll want to spend tending to it rather than other aspects of your business.
Also, be careful not to build unnecessarily high amounts of inventory, which wastes your resources and can get in the way of cash flow. And be sure to maintain a good credit history. You never know when you’ll need quick access to cash, and you don’t want anything standing in the way.

Encourage Early Payments from Clients and Extend Your Payments to Suppliers

Two basic actions can help almost any business improve its cash flow and cash cushion. You typically want to collect payment as soon as you can, once you’ve done the work or made the sale. And you want to be able to hold onto money as long as possible before paying suppliers. Of course, you don’t want to fall into disfavor with key clients or suppliers by pushing things too far.
One important habit, which should be routine, is to invoice as soon as you are able to. That way, you won’t add to any delay in receiving payment. You can also offer clients multiple payment options. This might lead to earlier payments from some clients and ease your vulnerability to a cash shortage.

Pursue Alternative Streams of Income

In addition to watching your cash flow and trying to minimize off-season expenses, another avenue to pursue is developing new sources of revenue or streams of income. Could you extend your peak sales period to develop complementary sales channels? For example, could online sales add to your physical shop or point of sale transactions? Similarly, would it make sense to add a new product line or service for your annual quiet period? If you’re thinking that this might be an option for you, check out the section on "Is Year-Round Expansion Right for Your Business?"

Line Up Backup Financing

Although you may not want to take a business loan or line of credit to get through the annual lean period, any type of financing that keeps your business afloat is clearly better than letting it sink because you couldn’t quite make it through the divide between one peak season and the next.
A line of credit can serve as an all-purpose safety valve. You can use it whenever you need it for as long as you need to. Perhaps you have an unusual period where sales are good but accounts receivable backs up, or you incur higher than usual costs without offsetting sales.
A government-backed loan can be another great option. The Small Business Administration offers a CAPLine Loans umbrella program. This includes the Seasonal Line short-term working capital loan program, which provides advances against anticipated inventory and accounts receivable.

Game Plan

Analyze your business’s Cash Management practices and begin making a few moves that could help add to your business’s financial security.
Next steps:
  • Conduct a complete 12-month cash flow projection. If you haven’t done this before, take your time and try to be thorough, thoughtful and accurate. Once you do this, it’ll be easier to follow up and update rather than create it from scratch.
  • Begin to build a cash cushion. During your peak season, set aside some money, like a squirrel saving nuts for winter. Work on maintaining a meaningful cash cushion that can last you through a slump or dry period.
  • Consider applying for a bank loan or line of credit. Learn how to prepare for a meeting with a bank aquí.
  • Approach clients and suppliers with creative proposals regarding early or extended payment plans. It doesn’t hurt to ask.
  • Explore new sources of income. Think outside the box. How else might you generate further income?
  • Read articles on these and similar topics, including:
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