How to manage cash flow for a seasonal business

Operating a seasonal business can be challenging. There are months where there might be modest or nonexistent revenue.

Savvy seasonal business owners use their slow seasons to prepare for the busier times of the year. That means looking for leveraging opportunities to generate revenue, strengthening your market position and managing cash flow.

Maintaining cash flow in a seasonal business can develop into a serious concern. However, if you plan and manage it properly, you can operate your seasonal business worry-free.

Knowing your peak times and slow times

When you have a seasonal business like a surf school or a ski resort, identifying your slow seasons is pretty straightforward. For other companies, falling sales can creep up and erode your cash flow.

The first step in managing your company’s cash flow is by identifying the busiest and slowest months of the year. It’s crucial to be realistic about your season. You don’t want to overestimate your peak season revenue or underestimate slow-season expenses.

If your company’s been operational for a few years, look at past sales data. Isolate months with lower expenses and higher revenue and the other way around.

Monitor your company’s cash flow

The only way to save or improve your cash flow is to watch it. At least once per week, or daily if possible, review your cash flow. Doing this will make you feel more self-assured in knowing where your company stands.

Seek out areas where you can cut expenses. If it’s been a while since you’ve done this, you will probably find hidden costs that wound up in your budget without you being aware. These items can be easily excised from your budget.

Create a budget and stick to it throughout the year

Most businesses that operate on a seasonal schedule don’t treat their operations as seasonal. Instead, they plan with long-term goals in mind and shift their focus at different times of the year. Budgeting is a vital tool that helps you smooth out many of the cash flow shortages seasonal company’s face.

Make sure your goals are crystal clear and try to plan three to five years out, so you’re better prepared for anything unexpected. Effective cash flow forecasting and budgeting are essential for your seasonal enterprise. With it, you’ll ensure working capital available throughout the year when you need it.

In addition to analyzing when your slow season starts, pay attention to the times of year you have the most fixed and variable expenses.

Fixed expenses are what you pay every month and don’t change no matter how many customers you serve. Examples include: Long-term lease payments, insurance and salaried payroll.

You can create a budget baseline by accounting for your fixed expenses. Once you have these established, you can begin planning for your variable expense.

Variable costs rise and fall along with cash flow because they typically don’t happen unless sales are made. Examples of variable costs include: Utilities, hourly wages for temporary help and material costs.

In the winter, your payroll might be more costly because you bring on extra team members, or in the summer, your electricity and air conditioning costs might be higher. By planning your entire

year, you can create a framework to build on if you ever need to reallocate funds for unanticipated expenditures.

You can also use your yearly plan to track cash flow results over time. This can help you make more accurate predictions of how future seasons will look in years to come.

Proactively refine your forecasts

To ensure your cash flow forecast is on track and accurate as possible, establish a 12-month plan. At the end of every month, commit to updating it. Once you complete a month, add a new one to the end so you’ll always have a rolling forecast able to provide you a complete picture of your company’s financial well-being.

By regularly updating your forecasts, you can see cash shortages looming on the horizon and benefit from higher revenue periods when you have a cash surplus. Accounting software, including QuickBooks, can help create a cash flow forecast.

Create best- and worst-case scenario plans

You should lay out two budgets even if you’ve experienced predictable cash flow: One where you need a bit of flexibility to meet higher-than-expected demand, and another where you require more of a financial cushion to get by. By creating these two scenarios, you can explore further whether you need to apply for a loan, line of credit or another funding source to maintain minimum working capital levels.

Secure a business line of credit or a loan in advance

Even though you might have created a thorough plan and cash flow forecast, there will likely be times when you encounter an unexpected expense, lower-than-anticipated revenue or you need to make a large purchase. Unforeseen costs like these can be especially challenging for seasonal companies during slow seasons.

Business financing is an invaluable financial tool to help your firm make it through your down seasons. For example, you may want to talk to your bank or a creditor about a line of credit, a loan or an alternative funding method.

Think ahead and be sure to line up financing several months before your slow season. Make an appointment with your bank to discuss your financial needs. You might be able to secure a line of credit at a lower interest rate than other forms of credit.

Banks typically need to see a business plan, so consider putting one together as soon as possible. You can use financial products like loans and lines of credit to bolster growth in your seasonal business.