A Director's Perspective on Treasury Management for Seasonal Businesses

It's no secret that starting and managing a business is hard work. In fact, Forbes recently reported that 70% of small businesses don't last a decade. While there are various reasons why companies close, problems with cash flow are one of the most common reasons cited for ceasing operations.

Many startups and even well-established businesses may struggle with how to spend their money. CB Insights found that 29% of startups failed because they did not know how to allocate their resources. Properly managing liquidity is essential for every business, but perhaps even more so for those that operate on a seasonal cycle and experience peaks and valleys in revenue.

Tyrone Gant, Director of Treasury Management at Vectra Bank, shared his insights on how a treasury team helps seasonal businesses with this pain point.

Struggles with cash flow for seasonal businesses

With over 20 years experience in the treasury management industry, Gant understands the difficulties seasonal businesses like ski resorts and ice cream shops face with their cash flow. "A business has to maintain enough liquidity, or cash, to operate on a daily basis," he said. "As business and revenue decline during slow months, operating expenses typically remain the same."

While seasonal businesses may offset the costs of operating during the slow season by reducing staff, many operating expenses such as the mortgage and utilities are non-negotiable. "The speed of collecting payments is also critical during a seasonal business's slow months," Gant added. "As extended delays in payments from customers can create a devastating effect on cash flow."

On top of daily business operations, managing liquidity and a payment schedule can be overwhelming for even the most experienced business owner, and that's where treasury management services can help.

Seasonal businesses must still have enough cash in the slow season to pay bills.

What does a treasury management team do?

A treasury team is a trusted resource for businesses looking to manage their cash flow. "It is important that a business maximize their NET benefits during their peak season, generating excess earnings to build up during their slow season," Gant explained. To achieve this, he outlined a few things a treasury team can help a seasonal business with:

• Finding the correct treasury management tools to help make their cash flow cycle as efficient as possible. "This could be accomplished by using an integrated payables tool," Gant said. Along with offering customers multiple options to pay invoices and incentivizing customers to complete payments early, businesses can speed up their collection process and optimize their payables.
• Strategizing an operating target balance needed to offset bank fees from treasury products with earning credits.
• Sweeping all daily excess balances that are above the operating target balance into an overnight short-term investment. This effectively maximizes a return on investment while maintaining liquidity, according to Gant.

"In essence, liquidity management is the basic concept of having access to readily available cash to cover debts, pay for goods and services and to fund short-term investments," Gant explained. Whether it be suggesting tools for faster collection or taking advantage of a commercial card to extend payable terms, treasury management teams provide seasonal businesses with the tools and guidance they need to manage their cash flows.

For more information on Vectra Bank's Treasury Management Services, visit our website or get in touch with a Treasury Management Officer today.

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