Cash Flow Management For Seasonal Businesses

Peninsula Team

November 04 2009

For all businesses and, in particular seasonal businesses, a cash flow forecast is an essential tool for identifying cash peaks and troughs in your financial year. This type of sheet can be as detailed or simple as your business requires.

From this, you can identify the periods in which you expect cash flow to be limited and whether these are cyclical or season specific. If you are able to perform this task every financial year you will be able to see trends within the figures which will be useful in forward planning for future years.

The bigger question is what can you do to combat the lean seasons? Below are some tips which may help you ride out the difficult periods:

Look at the payment terms for your sales and also from suppliers. If you can shorten your sales payment terms, you may be able to accumulate enough funds to cover a particular sticky patch. Alternatively, you may find it beneficial to see if you can extend your payment terms with your suppliers so that your payment due ties in with an expected peak.

If extending the payment terms is not possible with your suppliers, then look towards alternative purchasing strategies. Bulk buying can often prove financially beneficial as it is sometimes possible to negotiate discounts for large orders.

Is it possible to take early delivery to save your supplier valuable storage costs which in turn may earn you extra discount on your order?

If you have managed to build up a solid relationship with your suppliers and have a reputation for reliable payments then it may be worthwhile investigating whether you will be able to spread the cost over several months, thus possibly negating a large outlay at difficult times.

Staffing costs are quite frequently one of the major burdens of maintaining a seasonal business. Investigate the possibility of employing a skeleton staff for the low seasons and then supplementing this with temporary/short contract staff for the peak seasons. This can represent significant cash savings for long periods during slow or inactive periods.

Can your product or services be adapted to provide additional revenues throughout the year to keep your cash flow ticking over, thus making the highs and lows less pronounced? An example of this could be a Bridal Shop which traditionally has a peak season in Spring, but has since diversified into clothing alteration which has provided an alternative income stream without unnecessary additional costs during the quieter times.

There may be times after the peak seasons that you find yourself carrying high stock levels of unsold goods. It may be beneficial from a cash flow perspective to sell these items at a discounted price. An excellent example of this is Christmas goods, which are usually sold from October through to December, but come January there is usually a surplus of stock. Selling these items in advance of next season at a discounted price can provide a welcome influx of cash.

Tax bills are one of the inevitable cash drains upon a business. Corporation Tax is payable nine months and one day after your Year End date. Investigate the possibility of amending your Year End dates to incorporate the filing of Corporation Tax submissions when your cash levels are at their highest.

VAT is another potential cash drain, which can be managed beneficially. The Annual Accounting Scheme for VAT allows you to make instalment payments for nine months (or three quarters) of the year and submit an annual VAT return with you paying the difference in your final return. You can use the Annual Accounting Scheme if your estimated VAT taxable turnover for the coming year is not more than £1.35 million. Depending on your expected VAT outlay this can drastically reduce your expected return.

Finally, if at all possible, try not to withdraw funds from the business at peak times as this can potentially have a significant bearing on the off season(s). While this is not always possible, erring on the side of prudence in this respect is sure to pay dividends further down the line.

Five Top Tips:

  1. Create a cash flow forecast.
  2. Renegotiate payment terms, based on discounts, bulk purchasing or spreading payments.
  3. Reduce staff costs by employing seasonal/temporary staff for peak seasons.
  4. Diversify or adapt your products and services.
  5. Offer discounted products and services in the off season(s).

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