How to deal with seasonal fluctuations in your company cash flow
It’s hard when your company cash flow fluctuates, but there are things you can do to help predict the ups and downs in advance.
The best approach? Learn how to even out your finances. That way, you’ll be more prepared when your income starts to slow.
How to budget carefully
As with any business, it pays to budget carefully. But attention to detail is particularly important when you have a seasonal business or one that has long lead times.
Follow our step-by-step guide to get a better picture of your company cash flow.
Step one: Understand the flow and rhythm of your income
It’s tempting to rely on your instincts when it comes to the annual rhythm of your company cash flow. After all, you know which months turn the highest profits, right?
While that’s probably true, having more detailed data will build a bigger picture. It’s a good idea to look at the following data on a weekly, monthly and annual basis:
- Sales
- Gross profit
- Net profit
- Total overheads
- Breakdown of overheads by category
Try to chart at least two years’ activity and you’ll start to see patterns. If you’re a startup or a relatively new business, you can look at competitor financial information. This is publicly available on Companies House.
Some patterns should start to emerge, so you’ll see which months are comfortable for you financially and where you could face problems.
For example, you might have to purchase a lot of stock in your quiet period to be prepared for your busy season. Flagging these points in your calendar means you can plan and budget for them more effectively.
Step two: Map out your overheads and expenditure
Next, it’s time to delve deeper into your expenses and overheads. Most seasonal businesses have ongoing costs that continue year round, even when their sales drop off. It’s wise to find ways to manage these where possible.
A simple spreadsheet that breaks down each type of costs on a monthly basis should do the trick. The types of costs you incur will differ according to your industry, but are likely to include:
- Materials and stock
- Property costs, like rent, utilities, services, business rates etc
- Staff and consultancy costs
- Operational costs, like manufacturing and transport
- Additional services, like accountancy
This should give you a clear idea of how much you’re spending on what, when you’re spending it, and how often.
From here, it will help to get to know your fixed versus variable costs:
- Fixed costs. These are the costs that don’t vary and have to be paid regardless of your company’s sales or output. These include rent and insurance
- Variable costs. As the name suggests, variable costs change according to the volume of sales. For example, if you run a retailer, the cost of materials and transportation will rise if your sales increase
Step three: Make a cash flow forecast
Put simply, a cash flow forecast is an outline of when money comes in and out of your business. You can set it out on a monthly or weekly basis.
Tracking the following figures will give you a better picture of the pattern of your finances:
- Opening balance
- Outgoings
- Income
- Closing balance
It’s useful to make a cash flow forecast for four reasons:
- It shows how much available money you are likely to have at any one time
- It allows you to predict the future of your finances
- You can identify gaps in revenue, then put measures in place quickly to avoid running short on cash
- It encourages you to be proactive about any peaks and troughs in cash flow. That means you can reinvest when you’re cash rich or delay payments during quiet months
Streamline your fluctuating costs
For many seasonal businesses, staffing and stock cause the most fluctuations in company cash flow. It can be all hands on deck during the busy season and then be a one-man-band when it’s quiet.
Make use of extra stock
Have a business that relies on stock like materials or supplies? Look for ways to develop a healthier bank balance, particularly at the end of a season.
Being stuck with leftover stock can result in additional storage costs. Running a special promotion towards the end of the season or looking for alternative sales outlets could boost sales and reduce storage overheads.
Save on staff costs
Most seasonal businesses need additional staff during the busy periods. While this will affect your expenditure, it should also increase output and profit.
Streamline your hiring process during your downtime. Review job descriptions, onboarding and training processes. Recruitment agencies can provide a useful outside perspective or extra pair of hands too. This means you’ll be ready to hire when the time is right.
It’s a good idea to reach out to past employees who have indicated they’d be interested in working with you again. It’s far easier (and more cost effective) to reinstate staff who know the business than to train new people from scratch.
“The key for us is to make the job fun and rewarding enough that the team will keep coming back each year. We really do want to rehire the same crew each summer, as we value their knowledge and skills.”
Annie Hanbury, founder of Baboo Gelato
Diversify your income streams
Seasonal trading doesn’t need to be limited. Being creative about what you have to offer could lead to the introduction of new products or services and expand your revenue streams.
Make the most of the busy season
It goes without saying that things will be hectic during your busy seasons. But that doesn’t mean you can’t be proactive. This is the perfect time to boost profits by upselling to your customers and clients.
Develop a good understanding of your customers’ needs by building your relationship with them throughout the year. Those relationships mean you should be able to secure more business in the peak season.
How? Offering discounts on bulk products or longer term retainers is popular for a lot of businesses. Alternatively, give returning customers exclusive access to new products and services.
Focus on these early in your peak season. That way, you can ensure you have the staff and stock necessary to deliver.
Be creative during the quiet period
When you run a small business, quiet periods give you the perfect opportunity to go back to the drawing board.
Take advantage of this time and use it to think creatively about where your business could go.
Running a workshop with your team or consulting an external mentor is a great way to broaden your perspective. There may be new ideas you hadn’t thought of before, for example:
- Launching an off-season product or service. A summer adventure sports company could arrange winter trips abroad
- Hiring out your assets or equipment. Could a festival food truck make extra cash hiring out its cooking equipment over the festive season?
- Subletting premises during your quiet times. Try approaching pop-up businesses or events companies that need short-term lets
- Sell your skills. Could you develop a training or consultancy offering to sell as a sideline in the quiet months?
“A large proportion of our business is meetings and conferences, which is quieter during the summer holidays. However, our leisure and wedding business increases during this time. We currently have a variety of different suppliers that we work with, including Bear Grylls [survival courses]. This helps us counteract any seasonal pressures that could potentially affect other businesses.”
Matthew Long, general manager at Luton Hoo Hotel
How to cope with a change in cash flow
Now you’ve got to grips with your company cash flow forecast and budget, you should be able to spot opportunities to be smart with your available cash.
Rearranging certain payments is a simple way to cope with cash flow issues. It’s a good idea to look at changing annual payments to come out during your high-revenue months.
You can also see whether you can negotiate longer payment terms too – that will give you more leeway when there’s less coming in.
Funding and credit options
Most seasonal businesses factor in some additional finance that can help take them through off-peak seasons. If this isn’t an option for you, then business financing is an alternative.
The golden rule here is to plan ahead. If you’re asking for funding from a high street name, they will want to get to know you and your business first.
Even if you don’t need to use the finance now, exploring your options ahead of time gives you a head start should you need it in future.
Visit our guide on dealing with a short-term business cash flow problem. It takes you through funding and credit options, plus how to negotiate payment terms in more detail.
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