Lots of small businesses face a degree of seasonality, particularly in tourism and retail. A survey by Wells Fargo/Gallup shows that almost 50% of small business owners report certain times of the year that will be predictably busier or slower than others.
Difficulty in managing cashflow
Due to the ebb and flow in seasonal businesses, it can be more difficult to manage cash flow through the whole year. Large swings up and down in business revenues can risk cashflow being mismanaged and problems occurring down the line.
There are strategies that can be used by business owners depending on the type of business or industry sector to mitigate the seasonal downtimes and maintain a stable cashflow.
One thing that every business can do is maintain a cash flow forecast, as it will track the ins and outs of the cash, so a business can predict the money they’ll have every month of the year. To appropriately manage a cash flow forecast, here are four points to consider:
1. Know your peak season
The first step in the creation of an accurate cash flow forecast is to understand and identify the busy and slow seasons for your business. Being realistic with forecasts is key, so that peak season revenue isn’t overestimated.
For established businesses, the best way to start is by looking at historic sales data and isolating the periods with high revenues and low expenses, as well as vice versa. Start-ups and new businesses will need to use competitive research in order to accurately project sales.
2. Include recurring variable expenses
It’s simple to remember fixed expenses, like rent and utilities, when incorporating them into your cash flow forecast. However, variable expenses can be less predictable. It’s important to list the variable expenses, such as quarterly tax payments and annual insurance premiums and make sure they’re included in the forecast.
3. Think about a business line of credit
Even with a detailed cash flow forecast, it’s inevitable that there will be times when you will need to buy something major, or you come across an unexpected expense. It could be that your business just didn’t manage to bring in enough revenue.
These unforeseen costs can be very challenging for seasonal businesses if they have to shoulder them during down times. A business line of credit can help the business bridge the gap at such times. It allows business owners to access capital when they need it, and it’s usually at a lower interest rate than offered by credit cards.
4. Proactively and continuously refine your forecast
Updating the 12-month plan at the end of every month is a good way to keep it on track. This will always give you a clearer idea of the financial health of your business.
This time of year, approaching Christmas and the new year, is a great time to step back and ensure your cashflow forecast is accurate. Knowing exactly how much you have coming in, and much is going out, is one of the most important things a small business owner can do.
