Managing cash flow can be a challenge for every seasonal business, which is why owners must do all they can to govern it wisely and diligently. With cash flow being one of the most commonly mismanaged elements during seasonal downturns, here are our five best preparatory strategies to ensure your business can ease the cash crunch:
1. Project and plan
Cash flow is the lifeblood of SMEs and the number one reason behind their failure. Every seasonal business must keep a close eye on their books and plan ahead with care. Three month projections don’t give a broad enough picture of the firm’s future, which is why you must maintain annual cash flow projections. This will provide a detailed insight of the challenges you are likely to face during cash-rich and cash-poor periods.
During peak periods, also remember to track sales and expenses and compare these against previous seasons. This enables you to assess whether additional resources e.g. staff, are needed and can also aid with key business decisions such a stock replenishment. Not only will this process ensure you remain aware of your cash position at all times, but allow you to plan finances and budget allocation during leaner months.
2. Create a cash cushion
Ideally, you should build up a large enough cash reserve to keep your business afloat for at least six months in order to prepare for an extended dry period. Also be aware of any unnecessarily high build-ups of inventory which can quickly drain resources and put a strain on cash flow.
3. Identify alternative income streams
Trialling new revenue sources can help to minimise off-seasons. For example, consider extending peak sale periods or adding a new product line/service during quieter periods to offset any income reductions.
4. Invoice smarter
Late payments are one of the biggest issues facing businesses today, with the total amount outstanding across the UK recently estimated at £26bn. Of course, you want to keep customers and suppliers on side, with a well-oiled invoicing and payment operation maintaining harmonious relationships and reducing late payment risks.
As a habit, always invoice as soon as possible to prevent payment delays. Offering clients multiple payment methods and discounts for early settlements will help to ease cash vulnerability.
5. Research back up funding
Whilst most businesses would rather not take out a loan or line of credit, this additional funding during a lean period could be the difference in keeping your business afloat and it sinking. The rise in alternative funders over recent years has proven a lifeline for many SMEs, particularly when these lenders are able to take into account seasonal fluctuations and offer vital funds to those even with a poor credit history.
For further help and advice on managing cash flow during seasonal fluctuations, speak to our experienced business advisors today on 0161 703 2500 or email email@example.com.