Understanding Seasonal Cash Flow Patterns
For seasonal businesses to master their cash flow management, they must understand their seasonal cash flow patterns.
Seasonal businesses have high and low seasons.
- The high season is when you do the bulk of your business. For example, if you offer landscaping services, you likely get most of your business in the summer and fall (maybe spring).
- The low season is when you have little-to-no sales. Using the above example, a landscaping service may not get any business in the winter months. These months are their low season or slow period.
Understanding when your high and low seasons are can help you identify your cash flow patterns.
Why is it so important to understand your cash flow patterns? Because doing so will help you better prepare for slow periods.
Landscapers, for example, can create a plan to maximize sales and build up cash reserves during their high season to stay afloat during the low season.
If you don’t understand how your cash flow fluctuates throughout the year, you can’t prepare for slow periods.
Strategies for Managing Cash Flow During Slow Seasons
Once you have a better understanding of accounting and finance seasonal business cycles, you can start implementing strategies to better manage your cash flow during slow seasons.
Start with a Cash Flow Forecast
If you want to improve your cash flow management during slow seasons, you need to have an idea of what your cash flow will be like in the future. Creating a cash flow forecast can help paint this picture for you.
Get ready to revolutionize your business finances by analyzing your historical data like never before! Discover trends and patterns that will positively impact your business’s future. Don’t have the data you need? Not a problem! Utilize your competitors’ numbers to develop a comprehensive forecast to keep you on track. With this newfound knowledge, you can make informed decisions that will improve every aspect of your business, from sales projections to expense management. Exciting times are ahead, and the power is in your hands to make the most out of your financial future!
To create your forecast manually:
- Start by determining which period you want to plan for
- Next, list all of your income from all sources
- Then, list all of your expenses (or outgoings)
- Subtract your outgoings from your income
You can continue with this process to forecast your cash flow on a week-to-week or month-to-month basis.
If you want to save time and reduce the risk of errors, consider using an automated tool for cash flow forecasting. These tools use your accounting data to build accurate forecasts quickly and automatically.
Armed with this information, you can now start implementing strategies to improve your cash flow during your slow period.
Create a Realistic Budget
Budgeting will play an important role in your cash flow management during slow periods. Sit down and create a realistic budget that will trim unnecessary expenses while still allowing you to invest in growth.
It may be tempting to halt your spending entirely, but doing so may waste time and cause your business to fall behind the competition.
Negotiate More Favorable Payment Terms
Talk to your vendors, suppliers or even your landlord to negotiate more favorable payment terms. They may be more open to negotiation if you only want to adjust terms during the slow period.
For example, your landlord may be open to the idea of you paying more rent during peak season and a lower price during the slow period. Your landlord will still receive the same amount of money in rent, but the payment terms will be more favorable for you.
Another option is to see if suppliers or vendors would be willing to extend your payment period to 60 days instead of 30 days.
Maximize the High Season
Another way to improve cash flow during slow periods is to make the most of your high season. Find ways to maximize sales during this period so that you can build up your cash reserves to get you through the slow season.
How to Prepare for High Seasonal Demand
Seasonal businesses tend to fixate on surviving the slow season, but it’s also important to prepare for high seasonal demand.
Preparing cash flow and sales forecasts can help you get started on the right foot. Both of these forecasts will help you estimate demand and ensure that you will have enough cash to meet that demand.
Using Cash Flow to Plan for Future Seasons
Understanding your cash flow patterns and creating forecasts can help you plan for future seasons.
For example, if you know that your business is slow during the month of February, you can build up your cash reserves during peak season to ensure you have enough cash to get through the month.
Understanding accounting and finance seasonal business cycles can help you plan for high and low seasons in more strategic ways. But to do so, you must create cash flow forecasts, budget accordingly and keep a close eye on your outgoings.