When you’re operating a seasonal business, winter can be a serious downtime. Whether it’s due to the weather changes, fluctuations in retail sales or your clients off on holiday, many aspects contribute to winter being a slow season.
How can you manage expenses and ensure cash flow, while keeping your business running during this time? Here are some proven techniques to employ:
1. Budget for Seasonal Employment
At certain times of year, there is more demand for your services. In order to meet that demand you may want to take on seasonal staff. Knowing how much money to devote to the extra labor is an important budget question, however, and depends on your available cash flow. If bringing on more people will help you increase your bottom line, you may want to consider factoring to finance the new projects.
Ideally, you should know the number of person hours required of a product or service. In other words, you should have an idea of how much labor is required to fulfill your current customer needs. With this information, you can calculate how many temporary workers you need to meet increased seasonal demand.
Draw up a seasonal budget, including essential elements such as: forecasted sales; timeline of payment; cost of materials and labor. At its simplest, your budget will be a monthly calculation of all of your overhead costs against your revenue.
These numbers are misleading, however; you may calculate an invoiced job as this month’s revenue, but the payment may not come in for 30 to 90 days. Your calculations should give you an idea not only of your “paper” profit, but your real-life cash flow. A detailed cash flow statement should give you an accurate sense of your financial position.
2. Save Up and Stock Up
Cash flow all year long is nice, but it may not be as much as you hoped for in the winter. To prepare for the slow months, ensure you have saved up to cover investments and expenses you will likely incur during the down times. This is an essential part of managing your business’s cash flow. When income is low, you need backup cash — especially for services that require installment payments on a regular basis like monthly bills or digital business tools and apps you use online. If you find yourself in need of additional capital, you have plenty of options, even if you’re a new or small business that banks won’t service.
3. Create Off-Season Demand
Your customers buy different products and services throughout the year. Even if your core business is seasonal, it may be possible to find a complementary revenue stream during the off-season that will keep the cash coming in. Consider what else you could offer that will keep your customers engaged with your business.
If your business holds inventory, consider an end-of-season sale to bring in as much cash as possible. Any unsold inventory tends to lose value the longer it stays on site, so getting as much money as soon as possible will help maintain a positive balance sheet, even if stock is sold at a discount.
By partnering with other businesses during the low months, having special deals or sales for local customers, or transferring the bulk of your business to online sales, you can continue to see revenue during the low season. With any luck, your business will thrive for many years to come. In order to make the success last, take a close look at the pattern of your costs and maximize opportunities to earn revenue. Even a seasonal business can use every tool to work to its advantage.
4. Take Some Time Off
Even CEOs of businesses take a vacation. If winter is a slow month for your business, use it to spend time with your family, revamp your business plan or prepare for the next season. Maybe there is a convention you always wanted to attend or a retreat you could benefit from. Do your winter planning in advance and create a cash flow projection so that you can save up for these months and take some needed time off.
Managing cash flow and expenses is tricky for any business, but it’s especially challenging for seasonal ones. That said, if you plan right, it can be done.
5. Seasonal Cash Flow
Any business has to pay close attention to cash flow. Owners must always prepare for unexpected expenses or customers that fail to pay on time. This is especially true for seasonal businesses, who make the majority of their revenue only a few months of the year but nonetheless have fixed costs they must meet year-round. Here are some ways to keep the money flowing in order to keep the business thriving.
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Invoice Factoring
Typically, business-to-business companies invoice on 30 to 90-day terms. As a seasonal business, this can put serious constraints on cash flow even if customers pay on time. In order to improve cash flow, some companies use invoice factoring to get rapid payment.
With invoice factoring, the receivable is sold to a factoring company. That company pays the business the lion’s share of the outstanding amount — usually 80 percent — immediately. They transfer the remainder once the customer pays, less a handling fee.
In some industries, this kind of arrangement is common and customers will think nothing of it. In others, it may require customer education or a particular agreement with a factoring company that allows for the maintenance of a client relationship.
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Update Annual Projections
In order to anticipate possible shortfalls, it is important to forecast for the next 12 months. Rolling projections, updated monthly, allow you to see where you may come up short so you can prepare. Ideally you can compare your upcoming periods to periods in previous years that followed a similar pattern.
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Favorable Payment Terms
Costs do not go away during the off-season. It may be possible to renegotiate some outstanding costs, such as debt repayment, to reflect lower revenue projections. It may be possible to pay variable rather than fixed amounts in order to preserve the cash that remains in the bank.
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Line of Credit
Even in the off-season unexpected expenses may come up, and you may not have the available cash to cover it. A business line of credit gives you access to capital at an interest rate typically lower than a credit card. It can help you weather the low periods until the busy season comes around again.
At the same time, one way to ensure positive cash flow is to reduce reliance on high-interest debt. Review your liabilities on a regular basis to assess whether your costs need to be as expensive as they are.