Several of my clients bring in very little by way of sales between Christmas and New Year, making December and January tight from a cash flow perspective. While other clients make a high proportion of their sales over the festive season, and summer is their quiet period. If you run a seasonal business, there are a number of strategies you can deploy to maintain a positive cash flow. 4 TIPS FOR MANAGING CASH FLOW IN A SEASONAL BUSINESS

If you read my article last week, Business Lessons From It’s A Wonderful Life, you’ll know there’s one thing that all businesses will benefit from -- maintaining a cash flow forecast. A cash flow forecast will help you keep track of the inflow and outflow of cash so you can predict with confidence how much money you’ll have on week-by-week for the next few months.

Over the past few weeks, I’ve been working with a new client on his cash flow forecast. Sales will effectively come to a halt on 22nd December and won’t pick up again until 8th January. From a sales perspective, he has two three-week months. But he has the exact same expenses going out – salaries and rent for starters. He has a small overdraft agreed with the bank. But if sales are less than forecast, he won’t have enough cash in the bank to pay his salaries bill at the end of the month. But because he was forewarned, he was able to get the bank to agree to a temporary extension of his overdraft to tide him over.

Here are four things for you to consider as you manage your cash flow forecast for a seasonal business:

1. Know Your Busy and Slow Seasons

If you have a seasonal business, the first step to creating an accurate cash flow forecast is to identify your busy and slow seasons. If you’ve been trading for a while, you’ll have historical information to go on.

It’s important to be realistic with your forecasts, so take care not to overestimate peak season revenue or underestimate off-season expenses. If you have an established business, the best place to start is looking at historical sales data and isolating the months with higher revenues and lower expenses, and vice versa. For start-up or newer businesses, you’ll need to rely on competitive market research to project your sales.

2. Account For Both Fixed and Recurring Variable Expenses

Fixed expenses, such as rent, rates and utilities, are easy to remember and include in your cash flow forecast, but variable expenses aren’t always top of mind. From quarterly tax payments, to annual insurance premiums and subscriptions, there are a handful of important variable expenses that must be incorporated in your forecast. Planning for these costs in advance will help you in the long-term.

3. Consider A Business Line Of Credit

Despite your best efforts, there may be times when you encounter an unexpected expense or your business simply didn’t make the sales you anticipated. These unforeseen costs can be particularly challenging for seasonal businesses to shoulder during the slow season. Having a business line of credit in place can help your business bridge the gap in times like these.

Through a line of credit you can access capital when you need it, usually at a lower interest rate than a credit card would offer. Work with your accountant or business advisor to determine your financial needs and understand if a line of credit is a good option for your business -- before you need it.

4. Regularly Refine Your Forecasts

To keep your cash flow forecast accurate and on track, create a rolling 16-week spreadsheet and commit to updating it at the start of each week. Plan to add a new week to the end every time you complete a week so you’ll always have a complete picture of your business’s financial health. By updating forecasts regularly, you can anticipate cash shortages and take advantage of higher revenue periods when there is extra cash on hand.

As we approach the Christmas holidays and move into the New Year, it’s the perfect time to take a step back and make sure your cash flow forecast is up to date. By knowing how much money is coming in and going out of your business each month, you’ll be in a better position to maintain control over your business’s cash flow. It’s one of the most important things you can do for your small business.

Wishing you a very successful sales campaign in the run up to Christmas. And as always, thank you so much for reading my articles.

Question: Do you have a seasonal business? If so, how do you manage the seasonal fluctuations? I love reading your feedback so please do take a moment to share let me know in the comments box below.

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Denyse WhillierComment