2015-06-10 00:00:00 Cash Flow English More often than not, cash flow is difficult to manage in seasonal business. Luckily there are steps to ease the cash crunch during the down... https://quickbooks.intuit.com/ca/resources/ca_qrc/uploads/2015/06/Seasonal-Inventory-Business.jpg https://quickbooks.intuit.com/ca/resources/cash-flow/5-tips-on-managing-cash-flow-for-a-seasonal-business/ 5 Tips for Managing Cash Flow for a Seasonal Business

5 Tips for Managing Cash Flow for a Seasonal Business

4 min read

If you run a seasonal business, you know your cash flow can be challenging to manage. Sure, if you have a product that’s a runaway success, maybe you can focus your attention elsewhere. However, most seasonal businesses encounter cash flow challenges along the way. Luckily, there are some straightforward steps you can take to manage cash flow and seasonality, and even ease the cash crunch during your down season.

Contract Employees

Hiring contract employees is a great way to increase your financial flexibility. As a seasonal company, you want the right resources available when – and only when – you need them. Restricting your workforce to defined stints that parallel your busiest periods can accomplish just that. Given the significance of payroll costs for most businesses, minimizing wages during idle time is a logical step in taking control of your company’s profitability.

Lease Equipment

The options available for seasonal leases of office and computer equipment might surprise you, even if you require specialized equipment. If golf courses and tanning salons can lease equipment seasonally, then your business most likely can, too – and without the traditional upfront cash outlay.

You typically have two strategies available for seasonal leasing: renting for the period required or leasing with flexible lease terms. With the first option, you lease equipment for the desired duration. Seasonal leases break down into two payment subcategories: skip payments and step payments. Seasonal skip-payment leases, ideal for seasonal businesses, let you make payments throughout high season and stop making payments during periods of inactivity. Step-payment leases are similar but with one key difference: payments are required throughout the year but the amount of each payment fluctuates with your cash flow. Which should you choose? It depends on the extent of your cash flow cyclicality. Easylease and Equilease are two leasing companies that provide many seasonal payment choices to meet your specific needs.

Look for Flexible Locations

Temporary space can be hard to come by if your business relies heavily on location and needs to be in the same place each busy season. But if all you require is office space, you’re in luck!

All of Canada’s major markets have shared office and co-working facilities available, usually in accessible locations. This type of accommodation is ideal when your need for space grows with your business, since you only pay for the space you use.

If your business is location-dependent, you might consider subletting all or part of your facility when you’re not using it. Just as your space requirements are unique to the time of year, other businesses may require operating space when you don’t, easing any seasonal cash flow problems.

Managing Seasonality Through Low Interest Rates

Even if most of your costs fluctuate with the peaks and valleys of revenue, some off-season expenses may be unavoidable. Borrowing cheap money to pay your bills during slow times is a great way to provide your company with seasonal working capital and to shift the burden of expenditures into periods of higher revenue. As long as you can comfortably repay the loan when revenue revs up again, low-interest borrowing may be your golden ticket. Keeping your eye on interest rate fluctuations throughout the year can help you arrange for the cash flow for growth ahead of when you need it.

Minimize Working Capital

Working capital typically includes cash (and liquid investments), customer receivables, inventory and prepaid bills, offset by amounts currently owing to vendors, lenders, and employees to be paid within one year. Minimizing the working capital required to operate your business is ideal because it limits the amount of cash you have tied up at any given time. However, minimizing the capital requirements of a seasonal business is vital to managing cash flow and working capital.

One way to increase the amount of cash available is to shorten payment terms when billing vendors. The length of time granted to businesses to pay an invoice varies by industry, but generally payment terms are not less than 30 days or more than 90 days. Requesting payment in 30 days is a good place to start because it means you should get your money sooner. If you can’t collect those receivables within the 30-day window, you might add a reasonable interest rate to the balance.

Sometimes you can get vendors to pay in a timely fashion by offering discounts. These should take a seasonal approach as well. During your high season, when you’re experiencing good cash flow, you have no need to offer a discount. But when your cash flow slows down, offering a small discount may get you cash when you need it most.

Accordingly, you may have the opportunity to negotiate longer payment terms and early payment discounts with the vendors you purchase products and services from. Larger businesses are less likely to entertain the idea, but small vendors are more likely to accommodate your request because they want to maintain a good business relationship. If you can delay invoice payment deadlines by as little as 15 days, that’s still valuable time in which you can use that cash in your business. And if you can negotiate an early-payment discount, you should take advantage of it.

Another method of minimizing working capital needs is through stocking as little inventory as necessary to meet customer demand. To accomplish this, analyze past sales and create a forecast using QuickBooks Online. If you manage inventory correctly, you may only need a small amount of stock kept as a safety net if there’s a rush on a product. Of course, this strategy is only effective at maximizing cash flow if reduced order quantities don’t significantly impact the unit price of the goods, but analyzing that impact is worth it nonetheless.

Don’t be a victim of seasonality in business. Take control of your cash flow and rest easy in the off-season. Improve your cash flow with invoices, payments and expense tracking, and see how much cash you have on hand using QuickBooks.

Information may be abridged and therefore incomplete. This document/information does not constitute, and should not be considered a substitute for, legal or financial advice. Each financial situation is different, the advice provided is intended to be general. Please contact your financial or legal advisors for information specific to your situation.

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