If you notice peaks and valleys in your revenue or spot a pattern of inconsistencies in the flow of money coming in and out of your business, you may be susceptible to seasonal cash flow issues. Ebbs and flows in demand throughout the year are quite normal. The Canadian retail sector, for example, tends to see an upswing in sales between January and July. In 2019, sales increased by 28% during this time frame — a pattern that’s remained quite consistent over the years. Although such fluctuations might differ in intensity depending on the type of business you run, they’re often linked to seasonal factors like weather, holidays, or events that can affect your cash flow.
To ensure that you make the most of your busy season and position your business to better withstand slower periods, here are five tips for overcoming common seasonal cash flow challenges faced by most small and medium-sized businesses.
1. Identify your High and Low Seasons
Start by looking at your activity from the past year or two to get an idea of the flow of money that moves in and out of your business. This exercise will help you identify your high and low seasons and allow you to plan your business activities accordingly (holiday sales, inventory reorders, staffing, maintenance, etc.). You should also use this information to forecast your yearly expenses. Make sure to pay special attention to the capital you’ll need at the tail-end of your low season when your cash flow tends to be at its weakest so that you have the funds you need to prepare for the start of your high season. To gain complete clarity when it comes to your ongoing business expenses so that you can make better business decisions, consider Thinking Capital’s Cash Flow Advisor. This platform provides you with cash flow management tips, performance insights and helpful guidance.
2. Budget for the Unexpected
The last thing you want is to be caught off guard by events that have the potential to wreak havoc on your cash flow. Creating a contingency budget can help thwart off possible forecasting errors, like forgetting to factor in the shipping costs of inventory reorders. You may also want to set up an emergency fund for major purchases or expenses that ensure you can keep your business up and running in the face of a larger problem, such as having to replace broken equipment needed to complete a home renovation project.
3. Consider a Business Line of Credit for Added Security
If you’ve just recently launched your business, you may be having a hard time estimating your future expenses. Perhaps you haven’t yet earned enough income to comfortably see you through your first off-season. Those of you who’ve been in business for a while might be looking for a cash cushion to fall back on should you need to make a significant purchase that your emergency fund can’t cover. A line of credit gives you instant access to funds for whatever you need, whenever you need it, on an ongoing basis. You can apply for one online, it has no impact on your credit score, and you only pay interest on the money you withdraw.
4. Use Your Downtime Wisely
No business owner is thrilled about lulls in activity, but there’s a lot that can be done to ensure your cash flow is strong enough to tide you over until demand picks up again. A great way to maximize downtime is to review your annual expenses and see whether there are any costs that you can limit or eliminate until you’re operating at full speed again. From staffing reductions and restricting inventory reorders to putting unused software subscriptions on hold, renting out equipment, or shopping around for new suppliers, there’s no better time to drill down on smaller day-to-day expenses.
5. Diversify Your Income Streams
Though cutting costs may provide temporary cash flow relief, it’s often much easier said than done. What’s more, limiting expenses can stifle your ability to grow or prevent you from gearing up for your high season. If this is your reality, consider diversifying your product or service offering. For example, a snowboard shop may want to add swim and surf gear to their inventory to see them through the summer months. Landscapers in high demand in the spring and summer may consider providing a snow removal service in the winter. The key is to test the product or service you want to introduce in advance and ensure you have the funds needed to meet demand.
Running a small business isn’t easy, especially if it’s prone to seasonal cash flow complications. However, if you can limit off-season expenses, establish a safety net for the “what ifs,” and fine-tune your offering to the time of year, you’ll be better able to safeguard your business against the effects seasonality can typically have on your bottom line.
If you’re looking for a surefire way to maintain a healthy cash flow throughout the year, apply for our business line of credit, which gives you instant access to capital you can use to cruise through your low season and soar into your peak season.
Our business line of credit ensures you have instant access to the cash you need, with flexible terms and repayment options.