5 Cash Flow Management Strategies for Slow Business Season
From the weather to tourism to the holidays, seasonality affects businesses in different ways. In a 2017 Wells Fargo survey, 45 percent of surveyed small business owners reported that they have predictable times of the year when business becomes busier or slower than others.
E-commerce stores, for example, see their sales drop as much as 30% in the summer from their top numbers during the winter holidays.
To offset the seasonal slowdown, business owners must have strong cash flow management skills. But cash flow management can be difficult when there’s not much cash flowing in.
Below, we discuss several cash management strategies you can use to get through slow business seasons.
Project cash flow
If you run a seasonal business, the first step to managing it is projecting cash flow. This means identifying your slower months, as well as your peak season.
If you’ve been in business for a while, you can use financial records from past years to try and see a pattern. Take note of months when you had high revenues and lower expenses, and vice versa. If you’re running a startup, you can use competitive research to project your sales.
Once you have a clearer view of what to expect, you can also forecast your budget and manage your cash flow better.
Maintain a cash cushion
Ideally, businesses should set aside emergency funds that can cover up to six months of expenses. This acts as a cushion in slower business seasons.
If you don’t have a cash cushion yet, it’s best to start it immediately. It’s also a good idea to set aside more funds during your peak season when income is flowing more freely. When you’ve saved enough and maintain it, you have something to fall back on if your business experiences an extended shortfall.
Get a business line of credit
A business line of credit is one of the most valuable financial tools a business can get. It’s a type of revolving loan that you can use to meet short-term business needs, such as:
- Repairing business-critical equipment
- Purchasing inventory
- Bridging seasonal cash flow gap
With a business line of credit, you can rest assured that you can get by financially in case you encounter unexpected expenses, particularly during the lean months. In addition, you can typically get this type of loan at lower interest rates than what a credit card would offer.
Adopt a flexible staffing model
Labor expenses can take up a large part of your business’ finances. If you have regular employees, for example, you’re still contributing to their benefits whether the business is experiencing slow or busy months.
But with a flexible staffing model, you can free up some of your labor expenses and put them toward more pressing business expenses.
One of these methods is hiring seasonal employees during the peak season to help you keep up with the demand and only maintaining enough regular employees to cover your daily business processes throughout the rest of the year.
Of course, this is not always applicable, especially for businesses that may have longer peak periods than off-seasons. Explore different flexible staffing models and decide what fits your business best.
Find ways to create off-season demand
If you cannot cut costs further, then you need to make more money. Fortunately, you can do this during both slow and busy seasons.
When it’s peak season, make sure you’re actively marketing your business to generate more sales. As a result, you can have a bigger cushion to tide you over during lean months. And when said lean months start, you can diversify your revenue stream.
For example, if you run a lawn mowing business, you can pivot during the winter months and use some of your available equipment and double as a snow plowing business. Adding new products or services in line with your business can help you bring in cash and make your business perennial instead of season
Use the off-season to plan
Chances are, it’s difficult for you to develop long-term plans during your peak business season. But you can use your slow business days to plan for better seasons ahead. Set quantifiable goals, especially for your finances, so you’re more ready the next time you experience a shortfall
Keep Your Business Afloat with the Right Strategies
Quadrant Advisory provides financial planning and budgeting services for businesses in DC. With our team of business finance professionals, you can plan your business finances better and fare better during slow business months.
Consult with an expert today.