From landscaping to wedding planning and construction, many businesses deal with seasonal cash flow gaps. When expenses like inventory or payroll come before revenue, it can be a challenge to bridge the financial gap. The real issue often comes down to timing. How do you cover expenses before you earn the money, or how do you keep paying operational costs during your slow months?
Here are strategies to help you manage seasonal cash gaps, instead of just trying to survive.
Financial forecasting
Don’t let low season catch you off guard. With financial forecasting, you can use past financial data to predict how money will move in and out of your business in the future.
Forecasting can be done using a simple spreadsheet. Start by estimating your income and expenses for the next six to twelve months. This gives you a clearer picture of when cash is coming in and going out, and helps you identify months where expenses may exceed income. By spotting potential cash flow gaps early, you can prepare by setting aside money in advance, arranging financing early, or delaying certain expenses.
Build a cash reserve
During your high-earning months, make an effort to set aside money for your slower periods. A common target is three to six months worth of fixed operating expenses. For a seasonal business, this reserve can help to carry you through your slower months without borrowing.
To stay consistent, consider setting aside a certain percentage of your revenue each month. Keeping the funds in a separate account (ideally a business high-interest savings vehicle) can prevent them from getting used for day-to-day expenses.
Manage cash flow timing
To keep cash moving into your business consistently, there are a few small changes you can make to how and when money flows in and out.
One simple change is to speed up the pace of invoicing. Rather than waiting until the end of the month to invoice clients, send it immediately after you deliver the product or service. The sooner an invoice goes out, the sooner you can collect payment. To encourage clients to pay faster, consider offering an early payment discount.
Another strategy is to try to negotiate longer payment terms with your suppliers. This can give you more time and flexibility to collect revenue from customers before your payments are due.
Short-term financing
If you need a boost in cash flow to make it through the slow season, there are options other than loans.
A low-interest business credit card is one tool that can help with smaller, short-term expenses. Many credit cards offer a grace period, which is the amount of time between your statement closing date and your payment due date. During this window, which is often up to 51 days, no interest is charged on new purchases, provided you pay your balance in full.
You might also consider a business line of credit. Like a credit card, you get immediate access to credit when you need it, and you only pay interest on the amount you borrow. You can borrow, repay, and borrow again, up to your credit limit, but there’s no grace period.
With forecasting, you can apply when your business is thriving, so that you’re in a better position to get approved for financing—ahead of when you really need it.
Investigate seasonal repayment structures
Some lenders offer seasonal repayment options that align with how your business earns revenue. Instead of making a consistent payment each month, your payments can fluctuate based on your busy and slow seasons. If you own a landscaping business and earn most of your money in the spring and summer months, you can structure repayment so you pay more in the summer and less in the winter.
Are you prepared for the slow season?
Seasonal cash flow gaps are a normal part of running many businesses. But that doesn’t mean they’re not stressful. With the right approach, you can plan and stay in control of your slow season.
Media Contact Information
Name: Sonakshi Murze
Job Title: Manager
Email: sonakshi.murze@iquanti.com