A small business may fail for many reasons – sluggish sales, high start-up costs, tough competition. But the greatest challenge and cause of failure is cash flow.
Some small business owners may have trouble managing their cash flow due to year-round fixed operating expenses set against seasonal revenue streams that occur only a few months out of the year.
Landscaping, floral and tax preparation are businesses that may see inconsistent revenues much of the year while relying on a certain period of year for their main flow of cash to come in.
With any seasonal business, things don’t always go according to plan. That’s why preparation and attention to detail are critical to overcoming the ups and downs of managing a seasonal business.
To help you understand the cash flow roller coaster, here are six ways you can help yourself:
1. Use Your Downtime Wisely
During a slack time in your business cycle, beware of growing lazy and complacent. Instead, this is the perfect time to start planning for the busy season.
Take advantage of research or educational opportunities. Beef up your marketing efforts to put together a promotional plan for your busy season. Or take a design class to help your marketing efforts reach new customers.
2. Plan Future Expenses
Create an expense sheet in advance that you can follow to manage unplanned expenses, like a new piece of equipment or computer software. If you set up a budget that incorporates seasonal fluctuations in revenue, you’ll know how much money is available for surprise expenses.
3. Mix Up Your Offerings Or Services
Try adding to your primary revenue sources during off-season by offering products and services that align with your busy-season offering.
Landscaping businesses in the northern part of the United States, for example, specialize in outdoor holiday decorating and snow removal services during the winter. This requires investing in different equipment, but keeps employees working and the business’s checking account healthy.
Choose a product or service that complements your main objectives as a business and appeals to the same type of customer.
4. Add A Line of Credit
If something unexpected happens (natural disaster, equipment malfunction), having a contingency fund in place can ensure that your cash flow isn’t derailed.
Your business may be vulnerable to fires, floods, tornados, hurricanes or other types of natural disaster. Remember that anything is possible, and plan for the worst.
A line of credit can be valuable because it provides access to cash when you need it. Applying for a line of credit is easy and it provides assurance that the funding will be there when you need it. Apply for a line of credit today, rather than later when you may be in urgent need of money.
5. Consider Closing During The Slow Season
Closing your small business during the slow season is one way to balance your budget if it works out for you.
Sometimes, business can be done over e-mail or phone during the slow season. Let your customers know you’re still working, but not in the store during the slower months.
By closing your store, you save on electric bills, equipment operating expenses and payroll.
Perhaps you can lease or rent out your building during the slow months to bring in additional money to help improve cash flow.
6. Eliminate Unnecessary Expenses
Review your business’s annual expenses and see if there are any ways to reduce costs. Do you need employees year-round? How much office space do you actually need? Strong bookkeeping skills will help you stay on top of everything.
Even if you save only $100 here or there, performing an annual audit of expenses is a good way to improve cash flow.
Seasonal small businesses face unique hardships. But tracking your cash flow ahead of time and finding ways to save can ensure you make it through your slow season.
Staying flexible, and keen attention to cash management goes a long way toward being successful as a seasonal business.