Although seasonal businesses have upswings when income is abundant, cash flow management is especially challenging when revenue significantly drops during various times of the year. To mitigate these uncertainties, business owners need to consider the long-term financial pictures of their companies and plan for rises and falls in cash flow. Here are some cash flow management tips to help seasonal businesses maintain financial success throughout the year.
Identify Your Peak Periods
It will be easier for you to manage your company’s cash flow if you identify its peak periods as precisely as possible. Analyze your sales data from past years and pinpoint the months when your income is high and when it drops. This will enable you to plan ahead so that you can continue to meet expenses during lean times.
Costs such as utilities and rent are fixed throughout the year, but other expenses vary depending on how busy you are and how much inventory and staff you need. Don’t make the mistake of overspending when revenue is abundant. Instead, use excess income to compile cash reserves that you can have available during slack seasons.
Create and Update Cash Flow Forecasts
Seasonal businesses should create cash flow projections that look forward for a full year. The forecasts should be updated monthly so that you always have a current picture of the ongoing financial health of your company. These projections will enable you to anticipate shortages and set aside for them in times of plenty.
Open a Line of Credit
Despite the best efforts of owners to manage cash flow, seasonal businesses sometimes need the assistance of outside financing. Business lines of credit allow you to access needed capital to balance uneven cash flow. Interest rates are lower than those on credit cards, and you only pay interest on the amount of funds you draw from your credit line. Be sure to apply for a line of credit before your business requires additional financing so that it is there to draw on when necessary.
For more tips on cash flow for seasonal businesses, contact Northgate Capital Finance.