Seasonal Cash Fluctuations

November 15, 2018

You don’t have to operate a Halloween outlet to be at the mercy of seasons. Whether by design or circumstance, every business is seasonal to some degree, which presents some of the most challenging variables in forecasting.

Seasonal influences on cash flow can hide anywhere, so it’s important to understand the unique rhythms of your industry, your customers, and your suppliers. Consider these two most common areas of variability:

Sales

  • Certain times of year, such as holidays, fiscal year-end, tax time, and even a new school year, influence buying behaviors.  
  • Seasonal specials, sales, or new products or services will affect your profits – and your bottom line.
  • Just as seasons impact your company, they also affect your customers’ ability to buy your products or pay your invoices.

Expenses

  • Changes in staffing, like adding workers during holidays or busy seasons, will affect payroll and other personnel-related expenses.
  • Peak seasons require more cash for inventory, deliveries and advertising.
  • Vendors sometimes offer seasonal deals for recurring equipment or supplies.
  • Quarterly and yearly taxes consume a sizable portion of your available cash.  

Companies that don’t plan ahead for cash flow fluctuations risk suffering shortages during slower months. Take these five steps to navigate the challenges of seasonality in your business:

> Pinpoint Problem Seasons. Based on your accounting history, identify patterns and consider if (and how) your product or service changes in value based on temperature, holiday, or proximity to an annual event.  

> Close the Gaps. Determine where your problems in cash flow occur and fix them. For example, if your sales are healthy but revenue is low because of unpaid invoices, consider increasing collections efforts or offering new methods of payment.

> Be Proactive. Manage the seasonal highs and lows by planning ahead.  For example, schedule in a decrease in stock during the off season and bank your peak-season surpluses in anticipation of that old equipment breaking down during a cash flow crunch.  

> Get Creative. Use the slower seasons to inject new ideas into your business. Cultivate client relationships in fresh ways or think of innovative revenue streams that aren’t as vulnerable during that time of year.

> Pack a Parachute. Set up a self-funded account that you can access in a cash emergency and apply for a line of credit with your bank in case you need it.

Managing seasonal vulnerabilities by building a strategy ahead of time will ensure your readiness for whatever challenges the calendar throws your way.