Anyone who operates a seasonal business, must be familiar with difficulties in meeting financial obligations during their quite trading periods when revenues may be decreasing but one still have to pay their fixed costs like rents, rates, salaries etc.
When it comes to managing the finances of a seasonal business, you should first explore whether or not you can build more business during your low season. For example, you might be able to expand product choice, add more services that extend into busier seasons, or find another source of revenue streams. But if that’s not possible, be sure that you clearly understand your sales cycle and what impact it has on your trading operations and cash flows. Low-revenue periods are particularly difficult, since spending on expenses can be much greater than inflow of funds. One need to carefully observe and have prepared a cash flow forecast to avoid running out of liquid funds.
Important question to ask oneself are:
- Is your business sales cycle similar each year?
- Can you identify the highs and lows of each trading period?
- Around what time of the year you have experienced financial difficulties?
- Have all financial commitments were met comfortably on time in past?
- During quite trading periods what are the major expenses you need to be paid?
Optimise your Stock level
If your company’s products demand fluctuate high and low, you should try to optimise stock levels to meet your demand cycle. However, don’t forget that the demand cycle can affect not only the volume of orders but also their volatility.
For example, an school uniform business may have a huge range of £100,000 to £300,000 in monthly sales during its high season in September when schools are about to open, but a much smaller variation of £60,000 to £70,000 during other times of the year.
Stock levels should take into account cycles in both demand and volatility. You may want to enhance buffer stock levels during uncertain trading seasons.
Agreeing flexible payment terms with suppliers
Having fixed payment terms with major suppliers can be beneficial for some businesses. Flexible payment plans according to business revenue cycle enables to better manage company’s working capital by paying less when cash resources are drying off during low trading periods.
Reduce high borrowing costs
Managing the finances of a seasonal business can be difficult. But with the proper knowledge and the right tools in place, you will find yourself prepared for the low season.
Consider reducing or even paying off high cost debt if seasonal cycle cannot be altered. Debts such as credit cards and bank overdrafts which are generally high cost due to significantly large interest charges, can significantly affect working capital, especially in a seasonal business. Lowering credit costs is sensible thing to do. One way to achieve this is by consolidating all debts into one single debt so as to both reduce the interest payments and renegotiate a more flexible and affordable repayment schedule with the lender.
Business growth can be difficult challenge for any entrepreneur but with insight into your financial systems gained through budgeting and cash flow forecasting, and realistic plans put in place to with any financial uncertainties, you can overcome all challenges that may come your way.