Many small businesses these days have seasonal swings in their revenue. The main reason is that consumers often prefer to make purchases during seasonal promotions and sales. That being said, such businesses have an opportunity to predict which time of the year is most profitable for them. What’s more, the rest of the year will still yield some kind of profits.
However, businesses that are purely seasonal, such as tourism companies or farms, can only expect good income during the season, but the rest of the year is filled mostly with expenses. It’s often very difficult to maintain a positive cash flow during the entire year, when only a certain period yields profits. Still, with a bit of planning and strategizing you can maintain your financial situation at an optimal level until the next season. Here are a few ways you can handle finances for your seasonal business.
Forecast your financial status
For seasonal businesses, not every season yields the same amount of profits. One year, you may experience a vast boost in sales, while the other year may not generate that much interest. This is especially true for farming business, as one year may be plentiful, while another may be hindered by drought. Nevertheless, you may predict incomes and losses for the upcoming year with a bit of effort and forecasting.
It’s important, though, that you don’t underestimate your expenses or overestimate your incomes. Instead, be realistic about what you possibilities are, in order to create a solid plan for your cash flow. Also, make sure you prioritize your expenses and determine which ones should be taken care of right away, so that you don’t end up in even more financial trouble due to late payments and extra fees.
Don’t hire too soon
Seasonal businesses require employees to maintain the workflow, but only during busy seasons. During the rest of the year, you simply don’t need to have a full staff on hand. Instead, you must keep only the few full-time employees needed to ensure your business is operational. However, when the season comes, don’t rush to hire more employees before you actually need them.
That way, you’ll save more on labor costs, which you can invest to cover off-season expenses. There’s always a high supply and demand for seasonal workers, which means you’ll be able to find the workforce that you need. What’s more, if you maintain a good relationship with your seasonal workers, you can ensure that they return to work for you the next year as well.
Ensure regular payments
The essential aspect of maintaining a good cash flow is regular payments. However, regular payments during the off season are impossible for some seasonal businesses. That’s why many seasonal business leverage invoices as means of payment for their customers. Invoices allow you to collect payments when they’re due, which is anywhere between 30 to 120 days. This is a good way to stretch your incomes into the off season, but you must consider the fact that there are expenses to cover during that time.
Those expenses are utility bills, maintenance, taxes and so on. If you don’t have cash to meet your obligations until invoices are due, you can easily go bankrupt. On the other hand, you can use the invoice financing option to gain instant cash. You can look how are invoice finance explained to better understand how it works in detail. In essence, you sell some of your invoices to a company for instant cash, while the company collects payments from your customers when they are due.
Have an emergency savings account
One of the surest ways to ensure a positive cash flow for your seasonal business is to have an emergency savings account. You can postpone your growth investments and pour profits into a savings account, so that you can easily handle the off-season expenses and any other unexpected costs. Ideally, you should have at least six months’ worth of operating costs saved for emergencies.
That way, should you run into any financial problems, you’ll have access to cash you’ve saved up, which you can use to ensure that your business survives the dry period. Pouring funds into your savings account means you’ll be operating with little to no profit for some time, but that way, you’ll ensure your business’s financial security.
Running a business that experiences seasonal swings isn’t easy, especially running a seasonal business with profitable and non-profitable periods. Maintaining a positive cash flow during non-profitable times can be very daunting. However, with a bit of effort and good planning, you can ensure that you have enough cash on hand to ensure your business’s survival even during periods that yield no income.