Seasonal businesses can confront many cash flow problems if it is not accurately forecasted and monitored.
The cyclical nature of seasonal businesses makes them prone to cash shortfalls as they rely on sales to peak at a certain time of the year. The basic operating expenses still remain in their off-season so it is crucial they are managed. Here are a few ways seasonal businesses can manage their cash flow all year-round:
Be proactive about obtaining payment on time. Ensure invoices are sent promptly and late paying customers are followed up. Offering a discount for early payments will also help encourage on-time payment.
Negotiate with vendors
Some expenses can be structured so they work around the revenue available for the season. Consider negotiating with suppliers to accept larger payments during the busy season and smaller payments during the off-season. Alternatively, ask for a discount or extended payment terms.
Prepare cash flow projections
Seasonal businesses should estimate year-round revenue and expenses in a detailed cash flow forecast and budget. This involves forecasting month by month and including the balance sheet, profit and loss statement and cash flow forecast. Also, be sure to prepare for cash demands that may not appear on the profit and loss statement.
Consider a line of credit
A line of credit helps pay bills, such as inventory purchases and payroll through the slow periods, leaving peak season time to pay off the line of credit.