There are many ways to make the cash flow at a seasonal business much less seasonal. Keep your winter business running strong off-season.
For months, in temperatures close to freezing, you served your customers. You kept them fed until well into the night and you tended to their skis and snowboards.
Or maybe you operate along America’s southern-most shores and your best customers come when the snow is deep up north.
For you, high season means an abundance of fins and fishing lines. There were times when you stretched your staff and your finances to the limit meeting your high season demand.
Now that the snow is melting and the snowbirds are going home you face a potentially larger challenge: Getting through the off season.
No company does the same amount of business every day. Few do the same level of business every month. For some businesses, the swings can be particularly wide.
They have a rush of customers for an extended period, and then a long stretch when the phones go silent and the tables go empty. However, they still need to pay a raft of fixed expenses and come up with the capital to start the next season on a high note.
There are, however, many ways to make the cash flow at a seasonal business much less seasonal.
Pinpoint the Highs and Lows of Your Business
New point-of-sale (POS) systems make it far easier to see how business this Tuesday compared with business last Tuesday, and Tuesday a year ago. Look at your data month-to-month and year-over-year to see exactly when your high season starts and ends.
Putting this snapshot of your business against your fixed expenses (rent, utilities, insurance and salaried employees) will help you to see where your financial gaps will be and how big they will be.
Remedy the Challenges
Regardless of the season, you should always be looking to turn your inventory as fast as possible and get paid as promptly as possible. New invoicing software for small businesses makes it possible for workers who are not trained bookkeepers to bill clients as soon as the work is done, rather than wait for the office to handle it later in the month. The software will also alert you to which clients are late on their payments: With one push of a button you can send the invoice again with a payment reminder.
The next step is to look at the money you are paying out. If you’ve been in business for a while and have been promptly paying your suppliers, you may want to have a talk with them about payment terms which can help better manage your cash flow. See if you can pay them more when business is strong and stretch out your payments in the slow season.
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Be Your Own Banker
In high season, try to put aside a portion of your profits in an interest-bearing account. A good rule of thumb is to put 10 percent of your projected income into savings to be used at other times of the year. It can also be a good cushion if one year’s high season turns out to not be as high as it should, as this past winter was in the Northeast.
If you can’t be your own banker, think about your alternatives. You can set up a line of credit, and draw on it as needed in your slower season. You’ll pay interest on the money you draw down, so be sure to take only what you really need and include the repayment into your cash flow projections.
(Watch out for commitment fees and so-called unused line fees which can add to your cost of financing.) Another alternative: Short-term funding based on the business you do each month. Short-term funding generally is available for periods of three to 24 months, and repayment can often be structured to fluctuate according to your cash flow. Both lines of credit and short-term funding are available from online funders like Bizfi, which means you can strengthen your finances without a trip to the bank.
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Use Your Slow Season to Think About What You Can Do to Extend Your Business Year
Some small businesses sell merchandise online that is off-season in their home market, but in-season someplace else. If your business is in a destination location, watch for efforts to expand that destination’s appeal.
Some warm winter destinations are promoting themselves as perfect for year-round getaways, while ski mountains are re-fashioning their slopes as summer mountain biking sites. Forge a strong relationship with your local tourism authorities, and you might find low season isn’t low at all.