Running a business brings with it the responsibility of managing the cash flow through the peaks and troughs of the year. Times might be good during the peak cash flow, but the off season where the revenue dries up is where the challenge awaits.
Here we will explore in detail about the ways you can successfully manage and improve cash flow in a seasonal business. We show you solutions to seasonal cash flow problems and other ways to make the most of your peak cash flow.
Identifying your peak and off seasons
The first thing any business owner must do is fully understand their peak and off seasons. Depending on the services or products being offered, the seasonal cash flow of some businesses will peak during the summer, and others during the winter. These two points should be fairly easy to identify, but the exact starting point of the upward curve towards the peak and the downward curve toward the off season may require some research or experience.
Some businesses will experience sharp curves, and others slow ascents and descents into each seasonal phase. Once you understand the kind of phases your business experiences, you can better plan how to make the most of your off season.
Working to improve your product or service during the off season is paramount to ongoing success, and there are various ways to achieve this. Below we look at how you can maximise your off season as well as your peak cash flow phase.
Understand your costs inside out
One of the best ways to get a grip on your seasonal cash flow is understanding all of your costs, including both fixed and variable costs. Examine which fixed costs are necessary and which ones might be expendable, although you are more likely to find savings in your variable costs. Understanding the variable costs and what exactly causes their variability can make managing cash flow in a seasonal business much easier.
You may have some bills that don’t need to be paid all year round, such as utilities in premises that aren’t being fully used during an off season. You should also review the likes of software licences and subscriptions that you use for the peak season and see if they can be cancelled for the off season.
Forecast your cash flow
By creating an accurate budget that forecasts all of your cash flow over the next 12 to 18 months, you can predict potential seasonal cash flow problems in advance and make the necessary adjustments to compensate.
Cash flow forecasting is often used by businesses in financial trouble, but can also be used by healthy seasonal businesses to reveal the amount of cash available at any one time. By remaining aware of what expenditures are required and at what points they’ll need to be paid, seasonal businesses can avoid surprises and pitfalls which lead to a cash shortage during the off season.
Find new sources of revenue
An off season can provide business owners with plenty of time to innovate new ways to generate revenue. This could be in the form of a complementary sales channel featuring a product or service that has been tweaked for the off season. For example, a retailer specialising in umbrellas will experience peak cash flow during the rainy winter months, but could also use their supplier contacts to find stock of parasols and large beach umbrellas to sell during the drier summer months.
By finding new directions your business can pivot to in the off season, you can maintain a higher level of cash flow. You might even consider leasing out any equipment you don’t use during the off season, or conduct time-intensive market research that can boost your sales come the peak cash flow phase.
We Can Help
If you’re interested in finding out more about managing peak cash flow and the solutions to seasonal cash flow problems, or any other aspect of your business finances, then get in touch with our financial experts at GoCardless. Find out how GoCardless can help you with ad hoc payments or recurring payments.