How to Balance Cash Flow in a Seasonal Business

It is necessary to look at cash flow for a seasonal business when you are considering the importance of cash flow. Seasonal businesses are very common especial where weather has an impact on outdoor business operations and where retail sales are slower during cold winter months.

Seasonal businesses have challenges with cash flow and deal with stocking up for the big season and lasting through seasons where business is slow. Read on to find out how you can balance cash flow in a seasonal business.

Techniques to Manage Cash Flow in a Seasonal Business

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

  • Finding an alternative business option for the slow parts during the year.
  • Hire employees only during the busy times and lay them off when the season ends.
  • Develop banking relationships to allow for extra flexibility.
  • Close their doors and reopen when the season is busy.
  • Save money during busier times to cover expenses during the slow 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.
  • Create off season demand through partnerships with other businesses, move sales online, or by offering deals to local or repeat customers.

Nurture Forecasting

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

Develop monthly sales, spending, and cash flow forecasts that match your information on your accounting including units, channels, product lines and more.

Budgeting is critical for seasonal businesses and effective cash flow forecasting will keep you on top of the cash you have available throughout the year. Do your best to plan for three to five years out to ensure that you are prepared for the unexpected and have goals in mind for the future.

Maintain Your Forecasts with Monthly Review

It is important that you go back to the forecasts each month and compare them to actual results to forecasted results. Things always change so make it a habit to review them and make any changes in sales and spending.

Stay on Top of Changes

There is a difference between asking a bank for an emergency loan for payroll versus applying for a bridge loan in advance because you are aware of seasonality and you anticipate needing some extra working capital to help you stay afloat.

There will be better reactions by the banks, investors, and partners when you tell them ahead of time that you anticipate changes due to the season. Make sure they know about your seasonality and how you plan to deal with it.

Look for Additional Streams of Revenue

During busy season, look for additional revenue streams to capitalize on during the busy seasons and use slower months for planning. It is important to keep your core products and services as your focus during your busy season but keep an open mind for other opportunities.

Adapt Standard Business Processes

Some expenses can be structured so they fit the revenue available for the season. You could negotiate with vendors to accept payments that are larger than normal during busy seasons and lower payments during slow seasons.

It is crucial to manage your inventory. At the end of the seasons, any inventory left should be marked down and sold at a discount to increase off-season revenue and reduce carrying costs.

A line of credit might be appropriate for some seasonal businesses so check with your bank about any programs they might have available. Your local Small Business Administration, your state’s business development department and other financing sources are available for small businesses.

Consider diversifying into off-season products or services too. Consider what alternatives there are in your industry or are and try to see if it is something your business can create as well. There might be potential opportunities to sell online or outside your region.

The Bottom Line

For business owners that are seasonal, the off-season is the time to review each aspect of your business and prepare for your busy season and during the busy it is important that you stay on top of your financials so that you can leverage opportunities to generate revenue and strengthen your position when things slow down.