How to Manage Cash Flow For a Seasonal Small Business
Cash flow is undoubtedly the lifeblood of your small business. And keeping the incoming and outgoing cash under control is a challenge for all business owners. Sometimes this challenge of maintaining it leads to the failure of businesses. If you’re running a seasonal business (for example, an ice cream shop), you will face lots of ups and downs, which is another challenge of itself besides cash flow. Keeping a seasonal small business through down times requires a lot of diligence, preparation, and awareness that things may not always go according to plan.
Having said that, seasonal business owners tend to be more responsible, organized and disciplined when it comes to managing their cash flow. And that’s usually because they have built the most financially healthy business. So here are some tips on how to manage cash flow for your seasonal small business to succeed.
Identify your slow seasons
There are certain businesses where the slow season is kind of obvious; ice cream shop or ski resort. Others are not so obvious, which can be problematic when sales begin to decrease during those seasons and affect your cash flow. The best thing to do is to look at the past and predict when in the future your small business may slow down. For example, if you reside in Canada and own a food truck, you can easily predict summer time to be the busiest time for you, while winter time less so. (but of course, it all depends on which province you live in!)
Evaluate the current state of your cash flow
After you have fully identified your slow season, you should then take a better look at the current state of your cash flow. Properly managing can begin by putting together two important financial documents: your statement of cash flow, and your expense forecast statement. If you have never prepared a cash flow statement for your business, you can begin by looking at your past income and expenses for the past year or two, if possible. You can also use accounting software that offers cash flow statement besides their other reporting options.
Since preparing your cash flow statement can be a time-consuming process, it’s a good idea to take care of it during your offseason. And once you have created the document, it will become much easier for you to maintain it in the future.
Expense forecast statement
Now that you have a good grasp of your business’ cash flow from the past, you can start forecasting the expenses that are likely to arise during your offseason. The expense forecast statement looks very similar to your cash flow statement. The only main difference is that your cash flow is an analysis of your past transactions, while a forecast is what you can expect from your cash flow in the future. Think of it as an educated guess.
Improve cash flow, get paid faster!
You can improve your cash flow at any time. One way to do it is to speed up the payment process. There are several ways to do this:
- Invoice as soon as the products are delivered or services completed. Do not delay!
- Ensure that invoices are correct and sent to the right person
- If payments are late, follow up right away
- Have the flexibility to accept all forms of payment (credit cards, mobile, etc)
Create a budget that accounts for seasonal
Start budgeting! It can eliminate many of the cash flow problems you face during offseason times. Besides determining when your slow season is going to be, take note of the times during the year where you have the most expenses. For instance, for a food truck business, your fuel and heating costs may be a lot more during winter, and payroll higher during summer (if you decide to hire employees for that season). When you have a good understanding of your expected income and other expenses, you can budget accordingly.
Cut unnecessary costs
Throughout the budgeting process, look for areas where you can cut expenses. If you have not done this in a while, you will notice some hidden costs that show up in your budget. These can (and should) be removed. If your business goes downhill during off-season, you may consider shutting down and taking some time off as “vacation.” This is only possible if you budget accordingly to cover all your expenses during the closure.
Diversify your business for offseason to increase income
There’s no doubt that planning ahead to minimize expenses and to better manage your cash flow is a good solution for seasonal businesses. But there is always the option of diversifying your products or services to balance out your income during both high and low seasons. For instance, if you are running a ski resort that has a high attraction during winter, you can turn it into a conference or retreat centre for spring or summer time. This is largely known as a second income stream and it doesn’t have to be related to your core business brand. You’re basically turning your business into an entirely different business that allows you to use the same team, skills, and resources to operate in a different way.
When it comes to managing cash flow, seasonal small business owners face a lot of challenges. But there are ways around it. You can begin by evaluating the current state of your cash flow in order to conduct an analysis and forecast for future financial situations. Then, you can create a budget that accounts for those slow seasonal times and cut unnecessary costs. Lastly, you can diversify your business to balance out offseason revenue and expenses. Keep all these tips in mind and you will be on your way to building a sustainable business.
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