Large swings in revenue throughout the year brought on by holiday shopping, weather, and other annual events can make it exceptionally difficult for seasonal businesses to plan and sustain a positive cash flow.
The following tips can help businesses with seasonality problems cope with downturns and effectively manage cash flow throughout the year:
- When times are good, get a line of credit. The best time to set up a line of credit is when you don’t need it. Not only will you have the extra time it may take to secure a loan from a bank, you’ll also gain peace of mind knowing that it’ll be there when you need it.
- Use historical data to predict revenue and expense cycles. Look back at your last 2 to 3 years to identify the high and low points in your revenue cycle. Do the same for your expenses – see if there’s a cycle when you have higher expenses and a cycle with lower expenses.
- Leverage your supplier relationships. The goodwill you build up with your suppliers will likely make them more inclined to help you out with alternative terms that keep cash in your pocket during low sales periods. For instance, your suppliers may agree to hold a portion of your inventory and accept payments upon release, instead of requiring upfront payment for the entire lot. Long-term suppliers will help as they know your business and that you will not be ordering from a competitor. You benefit by aligning your supplier payments closer to when you will be selling the product.
- Create a labor strategy that optimizes your cash flow. Consider giving your employees time off during low seasons and incentivizing them by offering higher pay during peak seasons. You may also minimize your need to hire extra staff or pay overtime during peak season if you’re able to shift some of that work into the downtime months when your employees are light on tasks.
- Partner with your customers. Your customers can help you maintain a steady cash flow throughout the year if you give them the right opportunities to do so. Incentivize them to make purchases during your low season by offering worthwhile discounts that expire before the peak season.
Contact us for a review of your company’s cash flow management plan.
Learn more about how to cope with seasonality problems
As always, we hope you found these insights valuable, and would be happy to discuss them further. Companies focused on growth have sought the help of Insero & Co. for more than 40 years. During that time they have consistently experienced the peace of mind that comes from knowing their CPA firm takes the concept of integrity seriously. Should you have any questions about seasonality problems, please contact us directly.
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About the Author: Michael Marafioti
