Managing business cash flow can be a constant balancing act. This is especially true for seasonal businesses, where working capital can fluctuate dramatically from one season to the next. There are ways a seasonal business can maintain working capital throughout the year and avoid slow season shortfalls.
Budget for Seasonality
When you make the bulk of your annual revenue during specific seasons, it’s crucial that you have a budget in place that will preserve working capital and get you through the slow seasons successfully. This budget should include both fixed and variable expenses.
For example, the rent or mortgage payment on your business location is predictable from month to month. Your payroll will vary when you increase your workforce for the busy season and then pare it back when the season is over. All of this needs to be taken into consideration when planning your annual budget.
Anticipate Income and Expenses
While it may be impossible to account for every variable when planning your annual budget, looking at last year’s expenses is a good place to start. This can help you set a more accurate budget for the upcoming year.
Whenever possible, structure your expenses to match your available income during each season. Expansion and equipment upgrades should be done when your working capital level is high. It is also important to remain disciplined and save some of the peak-season earnings to cover off-season expenses.
Monitor Cash Flow and Inventory
A business budget isn’t a once a year, set it and forget it plan. Your cash flow and the working capital you have in reserve should be evaluated monthly. This will allow you to know exactly where you stand financially and whether you need to make adjustments to your existing budget.
You also need to monitor your inventory. While you want to make sure you are well stocked during your busy season, as the season winds down you need you to get rid of any excess inventory. It should be marked down and sold. This will let allow you to increase your working capital and decrease your inventory costs, also known as carrying costs.
According to TradeGecko inventory costs are typically 20 – 30 percent of your inventory value. This is a significant percentage and reducing inventory will, in turn, reduce the expense of storing it. Inventory costs normally include warehousing, depreciation, insurance, taxation, obsolescence, and shrinkage.
Make the Most of the Off-Season
During your slow season, there are a variety of things you can do in an effort to increase your working capital. In addition to keeping inventory at a minimum and reducing your workforce, it’s a good time to negotiate more beneficial terms with suppliers and customers.
Negotiate with suppliers to arrange to make payments during or immediately after your busy season, minimizing off-season expenses. Negotiate with customers to pay a percentage of their invoices upfront, reducing the gap between invoicing and payment.
Consider Factoring to Increase Working Capital
If your efforts to get the partial upfront payment of invoices fails or you just need a little extra working capital now, factoring can be the perfect solution. Those unpaid invoices are assets which, by utilizing factoring, can be turned in to cash now, not a couple of months from now. Even the most well thought out budget can be disrupted by an unforeseen expense. Factoring can get your budget back on track and keep your business moving forward even in the offseason.
Capflow Funding Group will work with you to find the best funding solution to provide your business with immediate working capital. We service many different industries with a variety of different funding needs. Contact us today and find out how invoice factoring can help grow your small business.