Seasonal businesses, including landscaping, construction, ice cream shops, and resort-related businesses, thrive in the summer months and struggle during colder periods. As September has now begun, cash flow may soon be an issue. There are precious few beach days left, and many shore-focused businesses close after Labor Day. Landscapers will be mowing lawns through October and can pick up leaf-blowing gigs, but the winter can put a freeze on finances. And how many kids will be screaming for ice cream in February?
Veteran owners of these types of businesses know to plan ahead for when times are lean. Businesses that aren’t typically seasonal may also encounter cash flow issues. Even companies that generate millions of dollars in annual sales will at times encounter financial difficulties. The truth is that many small business owners do not plan ahead for times when they will be cash poor.
Here are suggestions for the owners of seasonal businesses to avoid cash flow crunches:
Manage Your Receivables
Don’t count on your accounts receivables as revenue until your debtors actually pay you. If you find yourself in a position in which you cannot meet payroll or other obligations, it will hurt your business substantially. Improving your collection process is critical. Some advice:
Invoice Promptly — If you take your time sending the invoices for payment, don’t expect to be paid in a timely manner. Set an invoicing schedule, if possible, and stick to it.
Incentivize Quick Payment — Considering offering discounts to customers who pay upfront.
Encourage Down Payments — If a customer has a large bill, try to secure at least some percentage of the money you are owed.
Factor — If your receivables are growing but no one is paying, consider selling them for cash. There are many alternative lenders these days that are willing to give you a cash infusion in return for collecting a percentage of your monthly receipts.
Negotiate, Negotiate, Negotiate
Lowering costs is an important part of managing cash flow. Negotiate with vendors for more favorable terms.
Pay Bills Only When Due – Unless You Receive a Discount
Lateness in bill-paying bills is a bad practice, because it results in fees and can lower credit scores. Utilize technology, make online payments and transfer the funds in just enough time to stay current. By doing so, you will have cash available for longer periods of time.
Establish a Business Line of Credit
Opening a small business line of credit is helpful for companies that occasionally have cash flow problems. Banks and credit unions are among the lenders willing to set up lines of credit. Many Biz2Credit clients have secured lines of credit at reasonable interest rates. Competition has driven rates down.
Develop New Sources of Revenue
Landscapers often do snow removal in the winter. Catering companies will start focusing on booking holiday parties. Accountants, whose busy season comes before the April 15th tax deadline, offer financial planning services. In fact, some of them have gotten involved with helping their clients secure small business loans and other forms of financing. This solidifies the business relationships with clients and can result in generating referral income from funding deals.
Companies that are busy during the warm weather must prepare financially for the cooling off period during the fall and the cold, hard realities of the harsh winters.