Monday 30th Sep 2019
How do you improve seasonal cash flow? Some things seem obvious – like saving money while sales are up – but this guide gives you six other ways to improve your cash flow in a seasonal business, some of which you might not have considered before.
Get the basics right
Some businesses make enough profit in peak periods to easily see them through the lean times. If you run a small business with revenue that goes up and down on a seasonal basis, then you probably have sensible plans in place already – things like keeping a keen eye on your cash flow. These are the basics for any small business:
- Getting to know your fixed and variable costs inside out
- Knowing what you can cut back on, in terms of costs that vary greatly
- Making sure you’ve got all the details you need to forecast accurately
- Budgeting accordingly, and make regular savings to cover your expenses
If you’re not involved in hands-on accounting for your business, and you’re not sure what’s involved in cash flow projections, then you may find our Guide to Cash Flow Forecasting is a helpful tool.
For a seasonal business, it’s a good idea to make cash projections that work over 18 months ahead. Track sales in busy periods, monitor expenses on an ongoing basis. Draw comparisons, season by season, to get a year-on-year snapshot of your cash flow situation. Then, when you’ve covered all the bases in terms of basic business operations, you can look at other ways to help improve your cash flow:
1. Encourage the cash to flow faster
Many small business owners believe there’s a benefit to building relationships through their invoicing. It’s all too easy to develop bad habits like not sending invoices out on time, in the misplaced belief that this helps to maintain a good working relationship in tough commercial conditions. The other temptation is to not chase payments from key customers when your invoices are due to be paid. What you’re really doing is providing a better cash flow for someone else’s business than you’re delivering for your own. This is bad practice.
Typically, you want to be paid as early as possible after you’ve provided a service or made a sale. Get into the habit of turnkey invoicing – sending out invoices as soon as possible in the purchase cycle – and think about offering more than one payment option.
- Could you offer a discount for early settlement?
- Could you set up discounts on purchases for part-payment upfront?
- Would some customers be attracted by seasonal offers in exchange for early payment?
In all cases, be firm and clear in your expectations for settlement. Unfortunately, some small businesses struggle to follow this through if they have large, enterprise-sized clients. Don’t hesitate to follow through on customers that do not pay their invoices on time, and remember that you’re in business to make money (not to bankroll other people’s businesses).
2. Build better relationships with your suppliers
While you’re encouraging your own customers to pay on time, or even to settle their debts early, it may pay dividends to look at the way you’re paying your own bills. Not with the intention of defaulting on invoices of course, but with an eye to reviewing who you’re making purchases from on a regular basis, why, and how you pay those bills.
Find suppliers with whom you work well. Build on your relationships during the busy times, pay your bills punctually, and talk about securing discounts for buying in bulk or making a commitment to service provision over a longer period of time. By developing these relationships, you may be able to negotiate payment terms more favourably – in advance – for periods of time in which you know you’ll have less cash to play with.
3. Use your time wisely to increase your income
It may sound obvious, but many small businesses don’t take advantage of having free time to think laterally about their sales or operations strategy.
Motivate your team to find new sources of revenue. For most small firms, this means developing complementary sales channels such as new or improved product lines, or similar services being offered to the same customer base. Diversification and action-plans come in all shapes and sizes.
Could your team hold the key to a new source of income? Have they had novel ideas during the busy times which you haven’t been able to test or trial yet? Is there some time-intensive marketing activity you could undertake in one season to boost your sales in the next? Are there pieces of equipment that *you* don’t use in a particular season which you could lease to a similar business?
A wedding planner might explore offering corporate entertainment packages, for example, during the winter months. Any health, fitness, or lifestyle-focused small business could focus on marketing a ‘commitment’ deal to individuals who wouldn’t invest in the run up to Christmas but would probably be happy to make personal New Year's resolutions.
By taking the business in a new direction, seasonally, you could even out the peaks and troughs of seasonal cash flow. By investing time in marketing at the right time, you could bring in better, more stable streams of income over the longer term.
4. Take stock of your stock, regularly
The more time you spend running your business, the better your instincts should be for how much stock you need to keep on the shelf. Money invested in stock cannot be used to pay your bills.
However, in a seasonal business you’re having to deal with stronger, longer trends in buyer behaviour. External influences – the things you can’t change in life – are far more likely to be at a macro level over the long term (changes in the economy having an impact on your supply chain or customers’ purchase patterns) than on a micro level (changes in weather in the short term).
With this in mind, it pays dividends to be proactive in managing stock that can help you to increase your income during the slower trading periods. Selling less popular items at a discount, for example, when your season comes to an end.
The income you gain by managing your stock proactively might even pay the costs of storing the inventory during a low period of sales. Could you promote an ‘end of season’ cut-off point to your current customer basis? This would help you to reduce the amount of unsold stock you’re insuring and storing. Some suppliers might allow you to return certain types of stock for a credit against the next season’s orders – but it’s better practice to think ahead and work out your own cut-off points for bringing inventory in.
5. Review your year-round expenses, regularly
Keeping a healthy cash flow is a challenge for every small business owner. Even if you’re on track to deliver long-term profitability, it’s hard to trade if you don’t have cash at bank to purchase more stock or pay the bills – but are there some bills you don’t need to pay all year round?
As a seasonal business owner, you may be accustomed to having employees come and go on a seasonal basis. It may be clear there’s a cut-off point at which the costs of having staff could come down, significantly. However, you might also be in the habit of paying for things like software subscriptions all year round.
Take a close look at the small, regular payments you’re making every month. Do you need to use those creative software tools every month, or have access to libraries of creative stock during the leaner periods of trading? Are you paying for utilities on a monthly basis – could you find other tariffs that let you manage your payments more effectively, every quarter for example? Are your leasing costs covering periods of time when equipment or vehicles aren’t being used? In a tough commercial environment, many suppliers might welcome a renegotiated (lower) contract that helps to keep you in business for the long term.
6. Look at business financing, in advance
Ideally, you should build up a cushion of cash that can take you through the periods of lower sales activity with comfort every year. But there are other ways of getting through the lean times. Business financing is a valuable, practical tool for managing your small business’s cash flow in seasonal trading patterns. As someone who’s used to independence, seasonal financing – working capital for the lean times – might not appeal to you in the first instance. However, any form of financing you can afford is better than letting a business fail due to seasonal cash flow that’s beyond your control.
- Get to know a finance house now - a high street name with the resources to offer helpful advice and hands-on support, long term.
- Let a finance team get to know you and your business well, in case you need them later
- Explore your options for a line of credit (money you could draw down as and when you need it). It won’t commit you to financing immediately - but it could give you peace of mind.
Many finance houses could offer to help you with seasonal cash flow challenges. It’s important to choose the right one as a partner for your business. Interim financing is available to suit almost any small business’s budget, trading model, and appetite for risk (because not knowing your future sales figures for certain always introduces a certain element of risk into an agreement).
Hitachi Capital Business Finance has a range of flexible options you can explore, including asset finance, which allows you to invest up to £500,000 in new equipment without tying up capital, straightforward business loans up to £50,000, and invoice finance, which lets you release up to 90% of the value of any unpaid invoices.
Would you be willing to spend time exploring ‘Plan B’ today, to give you greater confidence in seasonal trading patterns tomorrow? Don’t wait until the last minute. Be proactive, talk to Hitachi Capital Business Finance and find out exactly what’s needed to get the process started.
You may find you can put a financing package in place that you never need to use.
- Get to know your fixed and variable costs inside out, budget carefully
- Encourage regular payment of invoices, have a strategy for handling late payments
- Look at diversifying your business, use the time to market your business
- Invest in forward-planning - accurate forecasts can help you to handle lean times
- Make regular savings to cover your expenses year-round
- Take the initiative. Get in touch with a reputable finance house, like Hitachi Capital Business Finance, and explore the options (you may never need them)
Disclaimer: Please note that these guides are provided for information purposes only and not as advice or recommendations. Before deciding to undertake any course of action you may wish to seek independent professional advice.