All businesses face issues with cashflow. It’s part and parcel of running a business. However, for some seasonal companies, there is an additional consideration to be given to the fact that the calendar dictates their business cycle.
Seasonal fluctuations are different for every business. For some, it’s the case that demand simply disappears out-of-season. For others, it’s more of a supply issue; the raw materials just aren’t available at certain times of the year.
Either way, the challenge remains the same: how do you plan for seasonality, and the reality that most of your income is generated in just one or two short bursts during the year? This is particularly critical when you consider that your bills won’t be seasonal – so you need to continue to pay them year-round, even when the income isn’t coming in as readily.
If your business’s revenue is tied to specific times of the year, financial planning is essential to ensure your survival. We have outlined our top tips for addressing seasonality so you can ensure you maintain cash flow through the summer and winter months.
- Produce an accurate cash flow forecast
- Plan your costs
- Identify opportunities for diversification
- Obtain short-term finance
Produce an accurate cashflow forecast
As a starting point, you must understand the cash flow patterns through your business to plot out when you might face issues.
Take the time to review all of your business’s incomings and outgoings in granular detail, looking at historical data where possible. The idea is to build a representative picture of your business’ trading patterns, based on fact rather than gut feel.
Identifying all of your costs is essential: some will be recurring, and others may have been a one-off. Either way, they will help create a forecast of what you can expect to see going forward.
Chart your sales by week and by month and detail an annual turnover at the end. You can then analyse your weekly, monthly and yearly cost breakdown against these.
This level of scrutiny will help you to produce an accurate sales forecast, highlighting the recurring fluctuations. You’ll then be able to budget a realistic value against these for projected costs at specific times during the year. This will also help you plan how far your revenue during peak times may carry you through the rest of the year.
Plan your costs
Your detailed cost analysis means that you should be able to put a plan in place for managing these costs throughout the year. The chances are that even when your sales pipeline is slower, the costs will keep coming and you need to be prepared. Falling into unnecessary arrears will only create a snowball effect with your cashflow.
Strategically managing your costs is the only solution, especially as you’ll know in advance when to expect the cost highs and the cost lows.
Here are some suggestions to maximise cash flow, even during off-peak periods:
- Negotiate your business rent to pay more in the busier months and less in the quieter months.
- Accumulate as many other outgoing payments as you can into the peak trading season.
- Agree on favourable terms with suppliers and negotiate longer payment terms during quieter months, offset against faster payments when the money’s coming in.
- Identify opportunities to streamline your business and reduce some of the costs during the off-peak season, as long as it doesn’t affect the company in the long-term.
- Manage your stock levels to ensure you aren’t holding too much on your balance sheet when sales are known to be slower.
- Build a cash reserve to cover any unexpected costs and allow for an increase in stock and staff going into the peak season.
By incorporating these steps, as well as carefully planning your expenditure, you will create a better cash balance across your operations and prevent cash flow issues spiralling.
Identify opportunities for diversification
Maximising your revenue is a must when growing your business, but for a seasonal trader, it can mean looking at other income sources to supplement your main income generator. These may be complementary to your primary income, or they may be a complete diversification. Either way, the objective is to soften the blow in the quieter months.
The obvious route is to look at what else you can offer as part of your main proposition, ideally something that takes your business into a new trading period or extends an existing one. The longer you can trade, the more opportunity you have to generate cash into your business.
For example, a retailer which experiences a boom during the winter months may wish to incorporate other lines to maintain demand in summer months. Or, the new line may be unrelated to your main proposition, but still offering value to customers during your off-peak stages.
However, the key is to ensure that any potential diversification taps into existing resources and adds no or minimal cost to your operations. The idea is not to embark on a high-risk expansion strategy, but more a steady move into other avenues offering an additional income stream.
Obtain short-term finance
A seasonal trading pattern makes it possible to predict when you may require external financial support, even if this is to simply keep your business afloat during the quieter months.
Don’t leave it until the last minute to apply for the finance, as you will likely pay an inflated cost for the privilege of fast money. With your robust cash flow forecast in place, this is a cost you should be able to avoid.
It’s likely that the cash flow challenges you are facing are paying your salaries, paying your rent or paying your supplier invoices and short-term finance is a solution for them all. You take on the debt and repay it over a fixed period with interest, and there are no long-term implications for your business.
Your main options for short-term finance include:
By accessing external funding where relevant, you can ensure healthy cash flow at all times, while using your peak-season revenue to repay loans and allow your business to carry on.
Get advice
Maintaining cash flow in the ongoing operation of your business is essential for survival. If you are a seasonal company, this becomes a trickier challenge to manage.
However, with careful planning, embracing new opportunities and external funding, you will be able to bridge the gaps in your finances to ensure you have the capital you need, all year round.
If you need assistance to get your analysis and planning off the ground, guidance on your budget forecasting or expert advice on the short-term finance solutions available, then speak to one of our advisors. We have the knowledge and expertise to get your through.