Is your business ready for seasonal cashflow peaks and troughs?
It's not always easy to deal with business "peaks and troughs" throughout the year. How will you address seasonal cash flow issues?
Ideally in business, you'd be able to keep a constant stream of payments coming in every month, but it doesn't always work that way.
In some industries, you have to deal with business "peaks and troughs" - sometimes, cash flow is moving rapidly, and other times, it slows down.
This can be frustrating to deal with as a business owner. If you work in an industry that's seasonal in nature, the slower months are often a major challenge. How will you keep coming up with the cash you need to meet your business' expenses? If you're trying to fund a major purchase, such as a new piece of equipment, will you still have the cash reserves you need?
Preparing a detailed cash forecast
If you know you're working in an industry that has seasonal fluctuations, it's important to prepare for that. Speak with your accountant about putting together a detailed cash flow forecast (Business Victoria has a template you can use here).
Think about when your shortfalls are likely to come, and have a list of month-by-month projections that you can use to plan your business' budget.
You can monitor your results and see how they compare and contrast with what you predicted. If reality deviates significantly from your forecast, you'll have time to think about why this is and how you can adjust accordingly, whether it is adjusting the credit terms you offer to your customers, allocating more staff to chasing down payments, negotiating payment terms with your suppliers or setting up a Debtor Finance facility.
Tweaking your business strategy
If your cash flow changes seasonally, maybe your business model should too. For an example of this, The Guardian cited Bruce Schofield, whose British business 'Good Intents' makes marquees for weddings and university events. Because these events mostly happen in the summer, he's had to mix up his strategies by month.
"We concentrate on continually improving the way we build and service marquees throughout the winter months, and our marketing challenge is to prove to new clients that a properly designed and constructed marquee can be used in any weather the UK can throw at it," Mr Schofield explained.
Can you do something similar, focusing on development and marketing during your down season and coming back stronger next year? Can you leverage skill sets to diversify into other markets? Can you take advantage of existing equipment to do this or do you need to invest in new equipment? It's worth considering.
Seasonal financing to accommodate your needs
If you're looking at buying new equipment, you may want to consider doing this in a way that complements your seasonal business. If you purchase and pay for the equipment upfront, you may deplete your cash flow reserves which you may need for the slower months.
Consider leasing or financing the equipment instead, particularly, if you can arrange to structure your repayments to be seasonally adjusted to your business volume. Higher payments when business is booming and cash is flowing, and lower payments during the slower months.
Classic Funding Group offers seasonally structured repayments, so if you want to protect your financial well-being by making cash flow-friendly payments, talk to us about a smart finance solution available to your business.