How to deal with the seasonal highs and lows of cash flow
by Startacus Admin
How to deal with the seasonal highs and lows of cash flow
In an ideal world, your business would have a steady stream of cash coming in each month to allow you to pay all your bills and taxes on time. Unfortunately, in the real world your business could be subject to seasonal peaks and troughs which may well have an impact on your cash flow.
Emily Coltman FCA, Chief Accountant to online accounting software providers FreeAgent, explores how seasonal highs and lows can affect small businesses and what steps you can take to mitigate these risks.
The impact of seasonal change
Depending on what kind of business you run, you might experience peaks and troughs at different times of the year. If you make Christmas decorations, summer is likely to be a quiet time for you, but if you sell ice cream it will probably be your busiest period! These are extreme examples, but any business can have seasonal lulls. Owners of service-based businesses may find themselves less busy during peak holiday times, for example, when a chunk of their client base might choose to take a break from work.
These seasonal highs and lows can be tricky for small businesses. Making fewer sales during quieter times means less cash coming in, and that can make paying bills and taxes tougher. This can be especially tricky for sole traders and partners, who may well have a tax and National Insurance bill to pay at the end of July. Even busy times can be problematic if business owners don’t anticipate or plan for them; without any additional resource on standby, small businesses may find it difficult to meet increased demand and keep their customers happy.
Be prepared!
The key to managing these seasonal peaks and troughs is to be prepared for them. You probably have a good idea of when your quietest and busiest periods are, but it’s a good idea to take the time to check and update your cash flow forecast and review your past year's figures, so you can identify specific weeks or months to prepare for. Once you’ve done that, here are some additional tips to consider:
Plan ahead for your busy times
If you know you have a busy period coming up, make sure you have the resource in place well in advance to handle the increased demand. You might want to bring in a temporary member of staff, for example, or rent some additional equipment to see you through the busy season.
Put some cash aside for your quiet periods
At a time when you’re making lots of sales, try to put some money aside to ensure you can pay your business bills and taxes during quieter times.
Review your payment terms
Rather than waiting 30 days (or more) for payment, could you ask your customers to pay a deposit or even pay you in full upfront? This practice isn’t appropriate in every industry, but in the right circumstances it can help to smooth out your cash flow over the course of the year.
Consider expanding your offering
If your business is consistently affected by seasonal peaks and troughs, you might want to consider expanding your offering. Is there an additional product you could make or sell, for example, or an extra market you could sell into during quieter times? These are big decisions that you should take the time to consider carefully, but if your cash flow is currently at the mercy of the seasons, these kinds of changes may be worth making.
Taking action now
If you’re finding that the summer months are having an impact on your business right now, there’s still time to make a difference. Many business owners use quiet trading times to do more face-to-face and online networking and (most importantly!) to follow up on any new leads they generate. Take a look at our top tips for networking on social media for some helpful pointers. Another useful tactic during quiet periods is to review your outgoing costs and consider whether there are any savings you could make.
Seasonal peaks and troughs are a fact of life for most businesses, but with a little planning and preparation, it is possible to manage the impact they have on your cash flow.
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Published on: 7th July 2015
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