3 Ways to Manage Seasonal Cash FlowSeptember 2018 / Share
Cash flow is a crucial aspect of any business. Tracking an organization's inflows and outflows is important to financial reporting, but at its core it can often be the most basic measure of a company's health. A positive cash flow indicates net gains, while a negative cash flow could reveal problems with revenue streams or late and missing customer payments.
Yet the situation may not always be so cut and dry for seasonal businesses. Managing and forecasting cash flow can be difficult for those who may experience long lulls through the year and then surges in business linked to changing seasons: think landscaping companies that are most active in summer, tourist attractions in warm vacation destinations that see spikes in winter, or even small businesses that focus on Christmas or tax preparation.
When seasonal swings decide a business's fortunes, it's imperative business owners make all the effort they can to get a handle on cash flow. Here are three tips organizations can lean on to manage seasonal cash flow:
1. Plan your business spending and profits in advance
Seasons don't change sequence, so if a business knows it's going to be busy in spring and then see sales fall off in autumn, there's no reason it should ever be caught by surprise on the cash flow front. There will be months when you're flush, and then others when a budget line needs to be toed more closely. Planning in advance for these fluctuations is, therefore, a no-brainer.
The first step to take is establishing a year-long plan. By factoring in expected annual costs like rent and wages, as well as variable costs, businesses can arrive at a monthly baseline for cash they need on-hand to meet obligations or direct toward reserves. While seasons are short term by nature, business owners need to plan on a long-term basis.
2. Improve customer billing
Sometimes, even the best-laid plans can experience obstacles. Late-paying customers can cause serious headaches for seasonal businesses, which don't have the same margin for allowing accounts receivable to age like some other types of businesses.
The solution to this issue can be found by simplifying billing wherever you can. Automating certain tasks with software or technology investments may make sense if they can generate returns later on. At the least, seasonal businesses should communicate with customers and have an official protocol for moving through billing to eventual collections. Without these measures, cash flow may remain at the mercy of late payments.
3. Use company credit wisely
Business financial management extends beyond cash flow, even for seasonal organizations, which can rely on lines of credit during slow periods. Credit lines can be tapped to pay for unexpected costs or emergencies that would otherwise devastate cash flow. Financing can also be drawn to cover gaps if seasonal performance didn't hit targets.
Whatever seasonal cash flow management issues your seasonal business may have, it's important to find a bank that can provide the services and tools needed to control the situation as best as possible. Vectra Bank is experienced in working with businesses of all types to provide treasury management and credit line solutions that help manage cash flow. Contact us today for more information.
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The information provided is presented for general informational purposes only and does not constitute tax, legal, business or investment advice.