How To Manage Cashflow For A Seasonal Business
By Matt Reims
One of the toughest but most crucial aspects of running a small business is managing cash flow. Seasonal field service businesses, including carpenters and contractors, landscapers, electricians, HVAC professionals, etc., have a unique accounting challenge when it comes to managing this essential accounting function. Managing a positive cash flow can be a challenge when money is coming in 12 months a year. Seasonal businesses that only generate revenue a portion of the year, however, need a plan to stay in the black year-round.
If your small business is seasonal, you can relate to this dilemma. Fortunately, there are ways to survive financially the entire year, even if you’re only able to earn money for a portion of it. It takes planning, preparation, and having a solid understanding of how your field service industry works.
There are several ways to go about managing cash flow for your seasonal business. You can use all of the following tips at one time or just a few, but they’re all designed to position your business with funds to cover expenses all year long, even if your business is only operating for some of it.
Speed Up Your Customers’ Payments
You always want to get paid as soon as possible, but it’s particularly important for cash flow when your busy season is about to wind down. You can speed up payments by invoicing clients as soon as you’ve completed a service or delivered your product to a customer; make sure those invoices are 100 percent accurate so you don’t waste time having to correct and resend. And follow up with clients right away if they are late with a payment — this is a good practice for year-round small businesses as well.
Invest in a cloud-based accounting software system to help you get your invoices out faster. You can quickly plug in the pertinent information and email invoices so your clients have them in a matter of seconds.
Predict the Future
To manage the cash flow of your seasonal business effectively, it’s helpful to create forecasts for monthly sales, spending, and anticipated cash flow. An accurate cash flow forecast will go a long way toward analyzing how much money you will have available and what costs you may encounter along the way.
You can use your own business drivers, such has how many units you’ve already sold, distribution channels (the chain your product passes through until it reaches your customer), and which of your product lines are the most popular, to create sales and spending forecasts. These drivers should match the information provided to you by your bookkeeper or office manager. If you’re a one-person operation, then of course you’ll be responsible for managing this information. Be sure to go through each month to see how your forecast compares to the actual monthly financial results. Fortunately, you don’t have to create forecasts all on your own. A good cloud-based accounting software program can help you generate an accurate forecast based on the numbers you input.
Create a Safety Net
As individuals, we’re often told to “save for a rainy day.” It’s no different for small business owners, especially if your business is seasonal. Plus, you’ll know when your rainy day is coming: your off-season.
As you’re generating revenue during your active time of year, put some aside to build a cash cushion. Depending on your trade, ideally, you would save at least six months’ worth of business expenses to cover ongoing financial obligations like shop rent, equipment leases, etc. Those saved funds can help keep you afloat in the event your slow season goes longer than expected, or if your small business brings in less revenue during your busier time of year than your forecast called for. Plus, that money set aside will give you some additional financial peace of mind so you can focus on other parts of your company like marketing and networking.
Diversify/Expand Your Services
Your small business may only operate for part of the year, but that doesn’t mean you have to. While your seasonal business is on hiatus or hits a slow part of the year, find other ways to generate revenue to keep your cash flow active. For example, if you provide lawn service or clean pools during the spring and summer, perhaps you and your crew could provide snow removal in the winter months, and vice versa.
Delay Making Payments
This is not a suggestion to be delinquent in paying money that you owe. You still want to pay your business bills on time, however, you can better manage your cash flow if you keep money in your business longer. If possible, set up automatic online payments for your bills that take the payment out as far as allowed. This will give you access to your cash longer as it won’t be paid until the exact due date. If you pay an invoice by check, you’d have to make the payment at least a few days ahead of time so it arrives to your vendor on time. That’s four or five days longer you could have held onto those funds while, hopefully, another cash infusion came in.
Arrange a Financial “Plan B”
As a small business, you probably don’t want to take on any more loans than you have to. However, if taking out a business loan or getting a line of credit will help your seasonal business get out of financial trouble, it’s worth considering. The financing, although borrowed, will help keep your business afloat while you figure out how to better manage your cash flow until your next peak season rolls back around.
Another option to help get you through a slow time is a government-backed loan. The Small Business Administration (SBA) offers a CAPLines loan umbrella program, which includes a capital loan program geared toward seasonal businesses. You could receive an advance against anticipated inventory and accounts receivable through the SBA’s seasonal short-term working capital loan program.
Your seasonal business may only generate revenue for part of the year, but some expenses will come up every month. Stay out of a financial hole during your off-season and manage your seasonal business’s cash flow with accurate forecasting, prompt invoicing, and recognizing opportunities to create revenue during your slow period. These actions should help you stay in the black, regardless of the season.
